Pakistan’s economic recovery gained significant momentum in the first half of FY25, according to the State Bank of Pakistan’s latest report. Featuring the keyword “economic recovery,” the State of Pakistan’s Economy, Half Year Report FY25 outlines a sharp drop in inflation, a surplus current account, and the lowest fiscal deficit since FY05, marking a major turning point for the country’s economy.
Inflation Hits Historic Low
The report noted a steep decline in headline inflation, reaching just 0.7 percent by March 2025—a multi-decade low. This drop was driven by a tight monetary policy, controlled fiscal spending, improved domestic supply chains, limited energy price adjustments, and weaker global commodity prices. In response to easing inflation, the SBP slashed the policy rate by 1,000 basis points between June 2024 and February 2025, boosting liquidity and supporting private sector credit growth.
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Current Account Surplus and Fiscal Discipline
Pakistan’s current account balance turned positive as a steady rise in exports and workers’ remittances outpaced the increase in imports. Additionally, the approval and disbursement of funds under the IMF’s Extended Fund Facility (EFF) and an uptick in private inflows helped strengthen the SBP’s foreign exchange reserves.
Mixed Trends in Growth Sectors
Despite strong macroeconomic improvements, real GDP growth showed signs of moderation. Agricultural output dipped due to reduced acreage, unfavorable weather, lower input use, and policy uncertainty. The production of key kharif crops suffered, impacting overall growth.
Outlook Ahead
The SBP’s report paints a cautiously optimistic picture for Pakistan’s economic recovery. While challenges remain, the solid improvements in inflation, fiscal discipline, and external accounts provide a firm foundation for future stability and growth.
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