Key Points
- Monetary policy rate cut by 1,100 basis points during FY25
- Current account posts first surplus in 14 years
- Financial system remains strong, SBP reserves improve
ISLAMABAD: Pakistan’s economy strengthened notably in the 2024–25 fiscal year as inflation fell sharply, growth picked up, and the external and financial sectors improved, according to the Governor’s Annual Report (GAR) for FY25 released by the State Bank of Pakistan (SBP).
The central bank said the country’s average inflation dropped to 4.5 per cent, compared with 23.4 per cent a year earlier, driven mainly by lower food and energy prices. Better food supply and reduced global oil prices helped ease the cost of living, while inflation in non-food sectors also declined.
According to the central bank’s report, in response to this improvement, the Monetary Policy Committee (MPC) cut the policy rate by a total of 1,100 basis points between June 2024 and June 2025. However, the easing slowed later in the year due to global uncertainty, higher core inflation, and geopolitical tensions.
Fiscal discipline also supported stability, with the budget deficit narrowing to 5.4 percent of GDP and the primary surplus rising to 2.4 percent, the report said.
External account turns positive for the first time in over a decade
The SBP reported that the current account balance posted a surplus for the first time in 14 years, helped by stronger exports, lower imports, and increased inflows from the IMF’s Extended Fund Facility programme. These inflows also allowed the SBP to build up its foreign exchange reserves through market purchases, improving exchange rate stability.
Financial system stays resilient
The report mentioned that Pakistan’s banking sector remained stable and well-capitalized, expanding its assets to 52.4 percent of GDP from 49.1 percent last year. The adoption of IFRS-9 accounting standards improved banks’ risk management and ability to absorb losses.
Push toward digital and inclusive banking
The SBP highlighted several steps to promote digital payments and financial inclusion, including the creation of Raast Payments Pakistan (Pvt.) Ltd. to manage the country’s instant payment system, the launch of the PRISM+ settlement system, and a Regulatory Sandbox for testing new financial technologies.
It also launched the National Financial Inclusion Strategy 2024–28, targeting 75 per cent inclusion and cutting the gender gap to 25 percent by 2028. Initiatives like the Banking on Equality policy and financial education programs are part of this broader goal.
Structural reforms and future challenges
The SBP praised recent tax, customs, and agricultural reforms and the gradual removal of untargeted subsidies but warned that global tariff changes and the 2025 floods pose new challenges.
According to the central bank, it would remain vigilant in monitoring risks to keep both price and financial stability on track, describing these as essential for sustainable economic growth.
