In a significant development for Pakistan’s economic outlook, the State Bank of Pakistan (SBP) has released its Half-Year Report for FY25, titled The State of Pakistan’s Economy. The report, published on April 28, 2025, outlines notable improvements in several macroeconomic indicators, including headline inflation, current account balance, and fiscal deficit.
According to the report, Pakistan witnessed a substantial drop in headline inflation, which fell to a multi-decade low of 0.7 percent by March 2025. The SBP attributes this dramatic disinflation to a tight monetary policy stance, rigorous fiscal consolidation, more stable global commodity prices, and improved domestic supply conditions. The report also credits the IMF’s Extended Fund Facility (EFF) and international credit rating upgrades as key enablers of macroeconomic stability.
The SBP notes that the reduced inflationary pressures and a more favorable inflation outlook allowed it to slash the policy rate by 1000 basis points from June 2024 to February 2025. This monetary easing, in combination with a modest rebound in economic activity and a boost in Advances-to-Deposit Ratio (ADR) lending, spurred robust private sector credit growth during the first half of FY25.
On the fiscal side, the report records that Pakistan contained its fiscal deficit to the lowest level since FY2005, reflecting a disciplined fiscal approach. Simultaneously, the external sector showed marked resilience as exports and remittances posted steady growth, outpacing the increase in imports. This led to a rare current account surplus during H1-FY25. The SBP’s foreign exchange reserves were also bolstered by the IMF disbursement and growing private inflows.
Despite these gains, the report provides a balanced assessment of GDP growth. It notes a moderation in real GDP, largely due to weak performance in agriculture and contraction in industrial activity. A decline in major kharif crop yields, unfavorable weather, lower cultivation area, and the reduced use of certified seeds contributed to the underwhelming performance in the agricultural sector. Industrial activity contracted again but at a slower rate compared to the previous year, with growth in small-scale manufacturing and utilities partially offsetting the negative impact from construction, mining, and large-scale manufacturing.
On a more optimistic note, the services sector performed relatively better in H1-FY25, helping cushion the overall economic activity. This improvement also supported a more stable employment environment during the review period.
A special focus chapter in the report titled ‘Pakistan’s Low Competitiveness: A Case for Investing in Productivity’ underscores chronic structural inefficiencies. It highlights weak labor and total factor productivity growth as long-term impediments to sustainable economic development. Pakistan’s lagging performance compared to peer economies is attributed to macroeconomic instability and underinvestment in productivity-enhancing reforms. The SBP calls for targeted structural interventions to address these deep-rooted challenges.
Looking ahead, the SBP forecasts average inflation for FY25 to fall within a range of 5.5 to 7.5 percent, thanks to continued fiscal discipline, a prudent monetary stance, and easing global commodity prices. It also projects the current account balance to stay within a -0.5 to 0.5 percent range of GDP. Remittances and exports are expected to maintain momentum, offering resilience against potential declines in financial inflows.
The central bank maintains its real GDP growth forecast for FY25 in the range of 2.5 to 3.5 percent but flags risks tied to tighter fiscal policies and an underwhelming wheat harvest. Medium-term threats include global trade disruptions, energy price adjustments, currency volatility, and geopolitical tensions.
The SBP’s Half-Year Report presents a cautiously optimistic view, recognizing recent gains while urging a strategic focus on productivity and long-term resilience to avoid recurring economic volatility.