The State Bank of Pakistan (SBP) recently released the Governor’s Annual Report (GAR) for FY2023-24, offering an in-depth analysis of the country’s macroeconomic trends, monetary policies, and financial sector advancements. Published under Section 39 (1) of the SBP Act, 1956, the report is a statutory document that provides a comprehensive overview of the SBP’s objectives, policy conduct, and economic performance. FY24 was marked by significant stabilization of Pakistan’s macroeconomic landscape following two challenging years, showcasing a steady recovery.
One of the key highlights of the report is the decline in National CPI (NCPI) inflation, particularly during the second half of FY24, due to the SBP’s tight monetary policy, fiscal consolidation efforts, and softening global commodity prices. The report attributes these favorable trends to easing pressures on Pakistan’s external account, leading to a notable buildup of foreign exchange reserves. These efforts, complemented by FX market reforms—particularly within the exchange companies—provided a sense of stability to Pakistan’s foreign exchange landscape.
The fiscal year also saw a resurgence in GDP, primarily driven by agricultural productivity. Record harvests in wheat, rice, and cotton contributed to an agricultural-led GDP growth, alongside a gradual recovery in large-scale manufacturing, which had contracted sharply in the previous fiscal year. Cautious of prematurely easing monetary policy, the SBP maintained a steady policy rate of 22% until late in the year, guarding against potential inflationary risks. The alignment of fiscal policy with monetary constraints helped achieve a primary surplus for the first time in 17 years, which, in turn, supported a reduction in the public debt-to-GDP ratio.
The SBP’s firm stance on monetary policy saw a significant shift when, after nearly three years, the Monetary Policy Committee reduced the policy rate by 150 basis points in June 2024, bringing it down to 20.5%. This decision followed a consistent decrease in both headline and core inflation over the second half of the fiscal year. The rate cut symbolized a gradual easing of the SBP’s tight monetary stance, allowing more room for economic expansion.
Moreover, the SBP’s GAR report emphasizes the resilience of Pakistan’s financial sector despite elevated inflationary pressures. The sector remained robust, maintaining credit flow and financial services provision. Growth in banking deposits surged due to high-interest rates and the SBP’s ongoing efforts in promoting financial inclusion and digital payments. The capital adequacy ratio, asset quality, and liquidity metrics of the banking sector also improved, enabling sustained financial health across the sector.
The report also outlines the SBP’s measures to support government economic policies. A cornerstone of these efforts is the successful completion of the National Financial Inclusion Strategy (NFIS) 2018-2023, with the development of an updated version to advance financial inclusion and digital services through 2028. The SBP is also pushing gender inclusion within the sector through the Banking on Equality (BoE) policy, tracked using a dedicated BoE Scorecard. Additionally, the central bank is developing a Financial Inclusion Index, aimed at enhancing data-driven decision-making for future policies.
Furthering its commitment to Islamic banking, the SBP introduced 12 new Shariah standards during FY24 to strengthen compliance and align practices in the domestic Islamic banking sector. These measures are part of the SBP’s broader strategy to expand Islamic finance in alignment with the Federal Shariat Court’s rulings on Riba, enabling the banking system to better serve Pakistan’s diverse banking needs.
On the digital front, the SBP made noteworthy advancements with the launch of Raast’s “Person-to-Merchant” service, accelerating digital business transactions across Pakistan. This service allows for transactions through QR Codes, Raast Aliases, IBAN, and Request to Pay options, promoting convenience and transparency. The SBP also achieved a significant milestone by signing an MoU with the Arab Monetary Fund (AMF) to integrate Pakistan’s Raast payment system with Buna, the AMF’s cross-border payment infrastructure, enabling smoother international transactions.
The GAR for FY24 underscores that Pakistan’s macroeconomic improvements, aided by a favorable global environment and disciplined domestic policy measures, are anticipated to maintain momentum into FY25. With inflation expected to further ease and a stronger current account position, the economy appears poised for a steady growth trajectory. The SBP’s ongoing digital and regulatory reforms, combined with a focus on financial inclusion and resilience, set a solid foundation for sustainable economic stability and progress in Pakistan’s financial landscape.