After years of severe economic challenges, Pakistan’s economy has entered a phase of stabilization, supported by coordinated policies between the State Bank of Pakistan (SBP) and the federal government. According to the SBP’s latest Monetary Policy Report (MPR), the country is now better positioned to manage both external and domestic shocks, though multiple risks remain on the horizon.
The MPR, released for the first time as part of the SBP’s efforts to improve transparency in monetary policymaking, outlines major economic developments and the macroeconomic outlook considered in recent meetings of the Monetary Policy Committee (MPC). The report notes that inflation, high deficits, depleted reserves, and sluggish growth had dominated Pakistan’s economy in recent years. However, through calibrated monetary measures and sustained fiscal consolidation, economic stability has started to return.
SBP Governor stated that Pakistan is in a stronger position today than it was two years ago to withstand economic shocks. The report projects real GDP growth between 3.25 and 4.25 percent for FY26, with inflation expected to remain within the medium-term target range. This projection comes as the policy rate has been maintained at 11 percent in recent MPC meetings, a stance the SBP deems sufficient to anchor inflation expectations.
Despite the improvements, the MPR cautions that Pakistan’s economic outlook is still vulnerable to factors such as global trade tensions, volatile commodity prices, extreme weather events, tight financial conditions, and domestic energy price shocks. The report warns that the trade deficit is likely to widen in FY26, potentially leading to a current account deficit of 0 to 1 percent of GDP. This is due in part to subdued global prices for Pakistan’s major exports, such as rice and cotton, as well as weaker demand for high value-added textile products amid global tariff uncertainties.
Nevertheless, projected financial inflows and continued SBP foreign exchange purchases are expected to boost the central bank’s reserves to $15.5 billion by December 2025. Growth in workers’ remittances is also anticipated to provide support to the external account, though it may not fully offset the expected trade gap.
The MPR stresses the importance of maintaining prudent fiscal and monetary policies, alongside accelerating structural reforms, to strengthen long-term growth potential. These reforms include measures to enhance productivity, improve export competitiveness, and ensure fiscal sustainability. The report also highlights progress already made by both the SBP and government in these areas.
In addition to economic forecasts, the MPR contains five analytical sections addressing monetary policy theory, policy communication, and the use of modern analytical tools. These include discussions on the lag effect of interest rate changes, comparative policy approaches among global central banks, interpretation of inflation fan charts, and the application of alternative data and machine learning for more timely insights into labor market and agricultural trends.
Overall, the SBP’s latest assessment reflects cautious optimism: Pakistan’s economy is stabilizing, but sustained discipline, reform momentum, and resilience planning remain critical to navigating uncertain global and domestic conditions.