Pakistan’s macroeconomic conditions continued to improve in the first half of fiscal year 2024-25, states the State of Pakistan (SBP)’s Economy, Half Year Report FY25, noting headline inflation fell sharply, the current account turned into surplus, and the fiscal deficit was contained to its lowest level since FY05.
In a statement accompanying the new report, the central bank said the favorable outcomes were underpinned by a calibrated monetary policy stance, fiscal consolidation, benign global commodity prices and the approval of the IMF’s Extended Fund Facility program. It also mentioned recent upgrades of the country’s credit rating by international agencies as recognition of the improving macroeconomic environment.
According to the report, inflationary pressures have receded notably, with headline inflation reaching a multi-decade low of 0.7% in March 2025. It has attributed the slowdown to several factors, including a tight monetary policy stance and fiscal consolidation that keeps domestic demand in check; improved supply conditions; respite in energy price adjustments; and subdued international commodity prices.
The cooling inflationary pressures and improving inflation outlook, it said, had enabled a lowering of the policy rate by 1000 basis points from June 2024-February 2025. It noted that the consequent ease in financial conditions, coupled with a slight uptick in economic activity and ADR-related lending, contributed to substantial growth in private sector credit during the first six months of FY25.
The report has attributed moderation in real GDP growth to lower production of important kharif crops and contraction in industrial activity. A broad-based decline in Kharif crops was seen to be caused by falling area under cultivation and lower yields, it said, stressing on the key role of agriculture policy uncertainty, last year’s low crop prices, unfavorable weather conditions, and lower use of certified seeds and other inputs for this lackluster performance. It also noted that lower contraction in industry during the first six months of the ongoing fiscal, as compared to the previous year, was supported by small-scale manufacturing, utilities and slaughtering, whereas mining and quarrying, construction and large-scale manufacturing contributed negatively. The report also observed that the services sector performed relatively better this year compared to the same period last year.
The report cited a steady increase in exports and workers’ remittances during the first half of FY25 as outweighing a notable increase in imports, leading to a current account surplus. This, it said, coupled with the disbursement of the first tranche of the IMF’s bailout and a slight pick-up in private inflows had strengthened foreign exchange reserves.
The report also includes a special chapter, ‘Pakistan’s Low Competitiveness: A Case for Investing in Productivity,’ underscoring that weak growth in labor productivity and total factor productivity has adversely affected the country’s economic competitiveness, contributing to frequent boom-bust cycles.
The chapter finds that Pakistan’s performance across most drivers of productivity and underlying structural factors has been notably weak when compared to peer economies and has stressed on addressing macroeconomic and structural constraints to productivity growth.
On the outlook for inflation and the external sector, the report notes significant improvement, projecting 5.5-7.5% average inflation for FY25. Similarly, it has projected a current account balance in the range of -0.5-0.5% of GDP. It anticipates strong momentum in workers’ remittances and exports to continue outpacing the increase in imports, cushioning against lower financial inflows and helping strengthen external buffers. The SBP’s projection for real GDP growth remains unchanged at 2.5-3.5%, though notes downside risks in the form of additional fiscal consolidation and less than expected wheat harvests.
The report details risks to the medium-term outlook, largely stemming from global trade disruptions and related commodity price volatility in light of reciprocal tariffs, changing geopolitical situation, adjustments in administered energy prices, response of domestic aggregate demand to various fiscal measures, and spillover of movements in international currencies on the local currency.