Pakistan’s economy has shown clear signs of stabilization in FY25, with inflation falling sharply, external accounts improving, and growth rebounding to 3 percent, according to the latest annual economic report released by the State Bank of Pakistan. The findings highlight a notable shift from prolonged macroeconomic stress toward a more stable and growth-oriented environment.
The report underlined a significant drop in average inflation, which fell to 4.5 percent in FY25, the lowest level in eight years. This decline from 23.4 percent in the previous fiscal year was largely attributed to stable exchange rates, lower international commodity prices, reduced domestic demand, and improved fiscal discipline. This environment of disinflation created space for monetary easing and more predictable economic planning.
Real GDP growth reached 3.0 percent, up from 2.6 percent a year earlier, mainly driven by a strong recovery in services and industrial activities. While agriculture remained under pressure due to erratic weather patterns, the momentum in other sectors helped balance overall growth.
The external account position also improved notably. The current account recorded a surplus of 2.1 billion dollars, marking the first surplus in 14 years. This turnaround was supported by a record surge in workers’ remittances, which rose to 38.3 billion dollars, effectively offsetting pressures from a wider trade deficit.
On the fiscal front, the deficit narrowed to 5.4 percent of GDP, its lowest level in nine years, while the primary surplus grew to 2.4 percent from 0.9 percent in FY24. This improvement reflected better revenue mobilization and expenditure control measures.
Sectoral analysis showed agriculture grew at a modest 1.5 percent, as major crops like wheat, cotton, and rice declined due to weather disruptions and seed shortages. In contrast, pulses, oilseeds, and vegetables saw increased output. Industrial activity expanded by 5.3 percent, particularly in energy and construction sectors, although large-scale manufacturing contracted by 0.7 percent amid still-subdued domestic demand.
SBP attributed the steep disinflation to lower food and energy prices, tighter monetary policy, and fiscal consolidation. Inflation fell below the medium-term target range of 5 to 7 percent, prompting the Monetary Policy Committee to reduce the policy rate by 1,000 basis points from June 2024 to January 2025. The benchmark interest rate was brought down to 11 percent by the end of the fiscal year.
Revenue collection surged by 26 percent, supported by both tax and non-tax components. Tax revenue increased due to the withdrawal of exemptions and rationalization of rates. Meanwhile, SBP’s foreign exchange reserves climbed to 14.5 billion dollars by June 2025 from 9.4 billion dollars a year earlier, backed by inflows from the IMF’s Extended Fund Facility and bilateral partners.
Looking ahead to FY26, SBP projected growth between 3.25 and 4.25 percent. However, it flagged downside risks from recent floods in Punjab and Khyber Pakhtunkhwa that damaged crops and infrastructure. While inflation is expected to temporarily exceed 7 percent in FY26, it is forecasted to stabilize thereafter. The current account deficit is projected at 0 to 1 percent of GDP, and fiscal deficit between 3.8 and 4.8 percent, showing continued fiscal discipline.
The report recommended accelerating structural reforms to support sustained growth. Key focus areas include rationalizing power sector subsidies, improving tax administration, enhancing federal–provincial coordination, reforming public sector enterprises, and advancing privatization.
It further emphasized the need to increase domestic savings, reduce reliance on bank borrowing, and leverage untapped sectors such as minerals, tourism, and agriculture for inclusive growth. The SBP highlighted that maintaining macroeconomic stability while advancing structural changes will be critical to sustaining the growth momentum.
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