The State Bank of Pakistan (SBP) has reaffirmed its projection for real GDP growth in the range of 2.5 to 3.5 percent for the ongoing fiscal year 2024–25, signaling cautious optimism amidst a gradually improving macroeconomic landscape. The projection was detailed in SBP’s half-yearly report, The State of Pakistan’s Economy, released today.
The central bank’s outlook is underpinned by encouraging signs in the external sector, particularly a better-than-expected performance in the current account. The SBP now expects the current account balance to remain within a manageable range of -0.5% to 0.5% of GDP. This positive shift is attributed to strong momentum in workers’ remittances, continued moderation in global commodity prices, and a favorable export-import balance. According to the report, exports are likely to keep outpacing imports, thereby cushioning against reduced financial inflows and supporting the country’s external buffers.
The report highlighted significant improvements in both the inflation and external sector outlooks. The central bank projects average inflation for FY25 to fall within the range of 5.5% to 7.5%, down from earlier, more pessimistic forecasts. This disinflationary trend is largely driven by a tight monetary policy, continued fiscal consolidation, and easing commodity prices globally. Notably, headline inflation fell to a multi-decade low of 0.7% by March 2025, a milestone not seen in recent memory.
However, the SBP has also cautioned against several medium-term risks that could disrupt this stabilizing trajectory. Among the most pressing concerns are global trade disruptions, increasing geopolitical tensions, and rising protectionist trade policies in major economies. The report warns that reciprocal tariffs and supply-chain uncertainties could elevate global commodity prices, with direct implications for Pakistan’s inflation and fiscal outlook.
Additionally, the SBP identifies the timing and scale of adjustments in administered energy prices, implementation of new revenue measures, and fluctuations in international currencies as key domestic risks. The PKR remains vulnerable to external currency movements, especially in light of weak financial inflows and reliance on short-term external funding.
In terms of domestic economic activity, the report acknowledges a slowdown in agricultural and industrial output during the first half of FY25. A broad-based decline in kharif crop production — driven by falling cultivation area, low yields, unfavorable weather, and minimal use of certified seeds — negatively impacted overall growth. Similarly, industrial output contracted due to lower energy availability and demand-side pressures.
Despite these sector-specific setbacks, the SBP noted an encouraging pick-up in private sector credit growth, spurred by easing financial conditions and the central bank’s decision to cut the policy rate by 1,000 basis points between June 2024 and February 2025. This sharp monetary easing was facilitated by falling inflation and marked improvements in fiscal discipline, energy prices, and international market stability.
Furthermore, the central bank emphasized the role of the IMF’s Extended Fund Facility (EFF) in bolstering investor confidence. The approval of the EFF, alongside prudent macroeconomic management, also contributed to a recent upgrade in Pakistan’s credit rating by international rating agencies—signaling growing confidence in the country’s fiscal trajectory.
As FY25 progresses, the SBP’s projections serve as both a roadmap and a reminder: while macroeconomic stability appears within reach, its durability hinges on managing external vulnerabilities and maintaining a disciplined, reform-focused policy path.