Pakistan’s macroeconomic conditions have markedly improved, with national inflation falling sharply to 4.5 percent in the fiscal year 2025 from a staggering 23.4 percent the previous year, according to the State Bank of Pakistan”s (SBP) Governor’s Annual Report for FY25 released today.
The report, submitted to the Majlis-e-Shoora (Parliament), attributes the dramatic disinflation to a combination of prudent monetary policy and sustained fiscal discipline.
The document highlights that the decline in consumer prices was widespread. A significant factor was the improved domestic availability of food commodities coupled with lower international food prices, which heavily contributed to easing food inflation. A substantial decrease in energy inflation, driven by softer global oil prices and subsequent adjustments in administered tariffs, also provided relief to consumers.
Core inflation, which excludes volatile food and energy items, was nearly halved during the fiscal year. This reflected contained domestic demand, anchored inflation expectations, and the diminishing ripple effects from previous shocks to food and energy costs.
In response to the positive inflation outlook, the SBP’s Monetary Policy Committee (MPC) enacted a cumulative reduction of 1,100 basis points in the policy rate between June 2024 and June 2025. However, the report notes that the pace of monetary easing was more measured in the second half of the year due to persistent uncertainties, including sticky core inflation, evolving global trade tariffs, and geopolitical tensions. This balanced approach fostered a notable expansion in private sector credit and supported a gradual economic recovery.
Fiscal consolidation played a crucial role in complementing the central bank”s efforts. The fiscal deficit narrowed to a multi-year low of 5.4 percent of GDP, while the primary surplus more than doubled to 2.4 percent, reinforcing the downward pressure on inflation.
The nation”s external sector also witnessed a significant turnaround, posting a current account balance (CAB) surplus for the first time in over fourteen years. This surplus, along with increased financial inflows following the IMF’s Extended Fund Facility programme, allowed the SBP to make substantial foreign exchange purchases, bolstering reserves and enhancing market stability.
The GAR FY25 also affirmed the resilience of Pakistan’s financial system. The banking sector demonstrated stability across all major indicators, with enhanced solvency metrics. The adoption of the IFRS-9 accounting standard strengthened banks” risk management frameworks and loss-absorption capacity, as sector assets grew to nearly 52.4 percent of GDP.
Furthermore, the central bank introduced several measures to support the government”s economic policies. These included reforms for exchange companies and initiatives to boost workers’ remittances, alongside new policies to facilitate exporters, particularly in the IT sector, by allowing higher retention of earnings to promote reinvestment.
Significant progress was also reported in the digital payments sphere. Key developments included the establishment of Raast Payments Pakistan (Pvt.) Ltd. to govern the Raast system, the launch of an enhanced PRISM+ settlement system, and the introduction of a Regulatory Sandbox Framework to encourage payment innovation.
Looking ahead, the report acknowledges the importance of steadfastly implementing structural reforms in areas such as taxation and market deregulation. While recognizing potential challenges from global tariff policy shifts and domestic floods in 2025, the SBP assured its vigilance in monitoring evolving risks to safeguard price and financial stability, which are deemed essential for achieving sustainable economic growth.