The year 2025 emerged as a period of cautious recalibration for Pakistan, marked by steady economic stabilization, structural reforms, and strengthened external engagement rather than headline-grabbing events. Against a backdrop of persistent global uncertainty, rising geopolitical tensions, and lingering domestic challenges, the country focused on regaining control over its macroeconomic environment. Policy discipline and coordinated external engagement became the defining features of the year, with fiscal and monetary authorities working in tandem to restore predictability and investor confidence. While rapid acceleration in economic growth remained elusive, measured progress in key sectors and reforms signaled that Pakistan was gradually transitioning from crisis management toward sustainable stability.
From a monetary perspective, the State Bank of Pakistan played a pivotal role in steering the economy toward normalization. In December 2025, the Monetary Policy Committee lowered the policy rate by 50 basis points to 10.5%, extending the easing cycle after a six-month pause. This decision followed a cumulative reduction of 1,100 basis points between June 2024 and May 2025, reflecting a deliberate approach to gradually loosen financial conditions without triggering instability. The dovish stance was underpinned by several factors, including declining global oil prices, improving inflation trends, and a relatively stable external account. Headline inflation continued its downward trajectory, easing to 5.61% in December from 6.15% in November, largely due to lower perishable food prices. On an annual basis, inflation for 2025 averaged 3.5%, the lowest recorded since the introduction of the current CPI series in 2016, giving the SBP confidence to maintain a cautiously accommodative policy stance.
The external sector showed measurable improvement, reflecting disciplined import management and robust inflows. By November 2025, Pakistan recorded a current account surplus of $100 million, while foreign exchange reserves held by the SBP rose to $15.9 billion by mid-December. These gains were supported by fiscal prudence, coordinated monetary policy, and adherence to IMF stabilization measures, which collectively restored predictability to the macroeconomic framework. Despite heightened global uncertainty and geopolitical pressures, including tensions with India, Afghanistan, and the broader Middle East, Pakistan’s economic performance remained relatively insulated. The Pakistani rupee closed the year at 280.12 against the US dollar, maintaining stability compared with last year’s close of 278.55, reflecting the combined effects of policy coordination and strong remittance inflows, which reached $16.15 billion during the first five months of FY26, up 9.33% year-on-year.
A key structural achievement in 2025 was the resolution of over Rs1 trillion in power sector circular debt, addressing systemic stress in the energy sector and improving liquidity across the value chain. Pakistan State Oil emerged as a primary beneficiary, with analysts estimating a potential positive impact of approximately Rs100 per share on a conservative basis. These reforms were complemented by progress under the IMF’s Extended Fund Facility, under which Pakistan secured $3.1 billion, with $3.9 billion still pending and linked to performance-based reviews. The IMF also imposed new structural conditions, focusing on governance, accountability, SOE losses, and distortions in key commodity markets, emphasizing transparency and private sector participation. Technical assessments further highlighted both regulatory achievements and ongoing vulnerabilities, particularly as Pakistan advances toward a sweeping transition to an Islamic banking system by 2028.
The political and institutional landscape underwent notable recalibration during the year, with governance reforms and constitutional amendments reshaping authority among state institutions and promoting fiscal federalism. The 27th Constitutional Amendment, passed in November, introduced significant legal and administrative changes designed to strengthen federal-provincial coordination. Diplomatic momentum improved in the second half of the year, with reductions in US tariffs on Pakistani exports, the signing of a strategic defense agreement with Saudi Arabia, and the successful management of border tensions with Afghanistan. The China-Pakistan Economic Corridor Phase II gained traction, prioritizing industrial zones and green energy projects with over $5 billion in new commitments, while financial integration initiatives, including preparations for Pakistan’s first Panda bond, reinforced ties with Beijing. Relations with the United States also showed pragmatic improvement, particularly in energy and critical mineral cooperation, supporting exports and strategic collaboration.
Pakistan’s equity market mirrored the broader economic stabilization, with the KSE-100 Index surging 51% in 2025, bringing two-year cumulative returns to 179%, despite episodic volatility arising from regional conflicts and global trade uncertainties. Gold remained the best-performing asset, delivering a 73% return, while domestic capital markets saw seven new offerings, including GEM Board listings, signaling renewed investor confidence. A milestone in privatization occurred with the sale of a 75% stake in Pakistan International Airlines to a consortium led by Arif Habib Corporation, representing one of the most significant divestment achievements in decades and reflecting the government’s commitment to structural reform.
As Pakistan enters 2026, the country moves from a year of consolidation into a phase characterized by more stable and sustainable growth. Consensus projections place the KSE-100 Index at around 214,000 by December 2026, supported by structural reforms, improved fiscal discipline, monetary easing expectations, and a favorable macroeconomic environment. While challenges remain, 2025 laid the groundwork for enhanced resilience, stronger institutional capacity, and renewed confidence, enabling Pakistan to approach the new year with greater control and strategic direction.
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