The State Bank of Pakistan (SBP) released its Annual Report on the State of Pakistan’s Economy for the fiscal year 2023-24, highlighting significant strides in economic stability and growth. The report attributes this progress to effective stabilization policies, productive engagement with the IMF, and an encouraging global economic landscape. Notably, increased agricultural productivity, with record harvests in wheat, rice, and a resurgence in cotton, led to a modest yet steady GDP recovery driven by agriculture.
Despite a rise in real economic activity, Pakistan’s current account deficit narrowed to a 13-year low, bolstered by a surge in exports and remittances that balanced a slight increase in imports. Coupled with the Stand-By Agreement (SBA) with the IMF, which catalyzed financial inflows from international partners, these developments improved the country’s foreign exchange reserves and stabilized the currency market. The SBP report noted a gradual appreciation in the exchange rate throughout the year and credited fiscal consolidation efforts for a significant reduction in the public debt-to-GDP ratio.
Aiming to curb inflationary pressures, the SBP maintained a stringent monetary policy, holding the policy rate at 22% for most of FY24 before reducing it by 150 basis points in June 2024 as inflation showed a consistent downward trend. Inflation fell sharply from a peak of 38% in May 2023 to 12.6% by June 2024, averaging 23.4% for the fiscal year, a notable decrease from the prior year’s 29.2%. The central bank also enacted reforms within the foreign exchange market and the commodity markets, facilitating order and efficiency in these sectors.
Fiscal discipline also saw significant improvements as the primary balance posted a surplus for the first time in 17 years. Lower global commodity prices, an improved global economic environment, and increased trade further supported positive macroeconomic outcomes. The report emphasized that these indicators reflect a stable economic footing, making room for further monetary easing to support growth in the coming year.
While the report is optimistic, it acknowledges structural barriers that threaten the sustainability of economic gains. Key challenges include low savings, constrained investments, and productivity issues exacerbated by climate risks. The report highlights ongoing inefficiencies in the energy sector, particularly the buildup of circular debt, as a persistent economic obstacle. The government has begun to address these energy sector challenges with price adjustments, but broader policy and regulatory reforms are necessary to tackle inefficiencies in State-Owned Enterprises (SOEs), which continue to strain fiscal resources amid a low tax-to-GDP ratio.
Addressing this issue, the report includes a special chapter on “Reforming SOEs in Pakistan,” detailing the history and current status of SOE reforms. It suggests a multi-faceted approach, based on international best practices, to create a competitive environment. Recommendations include implementing corporate governance reforms, ensuring robust regulation, and fostering a supportive political consensus to enable successful reform.
Looking ahead, the report forecasts continued improvement in FY25, anticipating the impact of the Extended Fund Facility (EFF) program with the IMF, approved in September 2024, which is expected to bolster Pakistan’s external account, strengthen its credit rating, and elevate investor confidence. The report projects that a stable global economic environment will benefit Pakistan, with inflation receding in advanced economies and commodity prices expected to stay low despite geopolitical tensions.
Pakistan’s current account deficit for FY25 is expected to remain within a narrow range of 0.0–1.0% of GDP, aided by fiscal consolidation and the residual effects of a tight monetary policy stance, which should further curb inflationary pressures. Revised projections place average inflation below the earlier forecasted range of 11.5–13.5% for FY25, supporting more manageable inflation levels. Lower borrowing costs, combined with a moderate recovery in large-scale manufacturing (LSM) and the services sector, are expected to sustain real GDP growth within a range of 2.5–3.5% for FY25.
The SBP’s Annual Report concludes that Pakistan’s macroeconomic stability in FY24 lays a foundation for steady economic growth, bolstered by IMF support and prudent fiscal and monetary management. As the country continues on this trajectory, addressing structural reforms in energy and state enterprises will be crucial for sustained, long-term economic progress.