The State Bank of Pakistan (SBP) has released its Half-Year Report for FY25 on the State of Pakistan’s Economy, highlighting a noteworthy turnaround in key macroeconomic indicators. The report reveals significant improvements during the first half of FY25, including a sharp drop in inflation, a surplus in the current account, and the lowest fiscal deficit in two decades—marking a positive shift in Pakistan’s economic trajectory.
According to the report, these outcomes were driven by a calibrated monetary policy, fiscal consolidation, subdued global commodity prices, and the IMF’s Extended Fund Facility (EFF) approval. These factors collectively contributed to a more stable economic environment. The SBP also noted the upgrade of Pakistan’s sovereign credit rating by international agencies as validation of the ongoing recovery.
A key highlight of the report is the substantial disinflation observed in recent months. Headline inflation dropped to just 0.7% by March 2025, the lowest in decades. The SBP attributes this disinflation to a mix of restrictive monetary policy, better fiscal discipline, improved supply chains, moderated energy prices, and easing global inflation. Consequently, the central bank has slashed its policy rate by 1,000 basis points between June 2024 and February 2025, supporting more relaxed financial conditions and a resurgence in private sector credit.
Despite these positives, the SBP report underscores moderation in real GDP growth, attributed largely to underwhelming agricultural output and contraction in industrial production. Poor Kharif crop yields—due to reduced cultivated area, erratic weather, low-quality seeds, and prior-year price uncertainty—have weighed on overall performance. While some improvement was noted in small-scale manufacturing and utility services, sectors like mining, construction, and large-scale manufacturing posted negative contributions. In contrast, the services sector showed stronger performance compared to the same period last year.
One of the most encouraging developments is the current account surplus achieved in H1-FY25, driven by a rise in exports and workers’ remittances, which outpaced the increase in imports. Coupled with IMF funding under the EFF and steady private inflows, these trends contributed to an improvement in SBP’s foreign exchange reserves.
The report also includes a special focus chapter titled, “Pakistan’s Low Competitiveness: A Case for Investing in Productivity.” This segment calls attention to weak labor and total factor productivity as major contributors to Pakistan’s recurrent boom-bust cycles. The SBP emphasizes the urgent need to address deep-rooted structural inefficiencies, offering insights drawn from international case studies and best practices.
Looking ahead, the SBP projects average inflation to remain between 5.5% and 7.5% for FY25, thanks to continued disinflation, a firm monetary stance, and subdued global prices. The current account is expected to hover between -0.5% and 0.5% of GDP, with the momentum in remittances and exports expected to support external stability. However, real GDP growth is forecast at 2.5% to 3.5%, with downside risks tied to wheat yields, further fiscal tightening, and global uncertainties.
The SBP warns of medium-term risks from geo-political tensions, trade disruptions, energy price volatility, and currency fluctuations. Still, the overall tone of the report suggests cautious optimism as Pakistan navigates its path toward macroeconomic stabilization.