The State Bank of Pakistan (SBP) stated on Thursday that cautious monetary policy and sustained fiscal consolidation measures strengthened economic stability during FY2024-25. Favorable global commodity prices and the IMF’s Extended Fund Facility (EFF) program also contributed to the overall improvement in macroeconomic conditions.
The central bank released its Annual Report on the State of Pakistan’s Economy for FY2024-25, highlighting that real GDP growth recorded a modest increase, driven primarily by the recovery in the services sector and industrial activity — despite a decline in major crop production and contraction in large-scale manufacturing (LSM). Economic expansion was accompanied by a rise in imports, while export growth remained limited due to lower global food prices, uncertain trade environments, and geopolitical tensions.
However, a strong surge in remittances not only offset the widening trade deficit but also generated a significant current account surplus. This surplus, along with increased external financial inflows from multilateral and bilateral lenders, helped stabilize the foreign exchange market and boosted SBP’s reserves.
The report noted that persistent fiscal discipline and a sharp rise in SBP’s profits brought the fiscal deficit to a nine-year low, while the primary balance remained in surplus for the second consecutive year, exceeding budget estimates.
Cautious monetary policy and fiscal discipline helped contain domestic demand, while abundant food supplies, a stable exchange rate, lower global commodity prices, and ongoing energy sector reforms played a key role in sharply reducing inflation. Inflation fell from 23.4% in FY2024 to 4.5% in FY2025, the lowest level in eight years.
In response to the rapid disinflation and a stronger external account position, the Monetary Policy Committee (MPC) reduced the policy rate by a cumulative 1,100 basis points between June 2024 and June 2025.
The report highlighted that Pakistan’s low savings rate has long constrained its growth potential by limiting both private and public investment. A special chapter titled “The Challenge of Low Savings in Pakistan” explained how low per capita income, high inflation, large fiscal deficits, the informal economy, demographic pressures, and cultural factors have all contributed to weak savings behavior.
Persistent fiscal deficits have curtailed savings and investment at both public and private levels. Heavy government reliance on banks to finance deficits has created a strong sovereign-bank nexus, often crowding out private sector credit. Additionally, climate change impacts, political and economic instability, high tax rates, complex tax regulations, logistical challenges, and law-and-order issues have negatively affected the investment climate.
The SBP emphasized that addressing these structural issues through coordinated policy actions and reforms is essential for putting the country on a sustainable high-growth trajectory.
It further noted that macroeconomic stability and prudent policies have restored business and consumer confidence, while improvements in the external account, fiscal discipline, and ongoing reforms under the IMF EFF program led to credit rating upgrades by the three major international rating agencies between April and August 2025.
