By Staff Reporter
KARACHI: The central bank said macroeconomic conditions improved in fiscal 2025 as tight monetary policy and fiscal tightening curbed inflation and bolstered stability, though risks from global trade disruptions, geopolitical strains and domestic flooding threaten the outlook.
The State Bank of Pakistan’s Governor’s Annual Report for 2024-25, released on Friday, painted a picture of resilience in the financial system and a modest uptick in real gross domestic product growth. The document, mandated under the SBP Act of 1956 and submitted to parliament, detailed how disinflation that took hold in the prior year accelerated.
“Average National CPI inflation dropped sharply to 4.5% from 23.4% in FY24 and 29.2% in FY23,” the report said. The slowdown spanned categories, with food inflation leading the way thanks to better domestic supply and easing international commodity prices. Energy inflation also fell markedly, aided by cuts in regulated tariffs amid softer global oil prices.
In response to the brighter inflation picture, the Monetary Policy Committee slashed the key interest rate by a total 1,100 basis points from June 2024 to June 2025. But the panel dialed back the pace of easing in the fiscal year’s second half amid persistent uncertainties. Those included “sticky core inflation during H2-FY25, evolving global trade tariffs, rising geopolitical tensions, and volatility in administered energy prices,” according to the report.
The cautious approach helped spur private-sector credit growth and fueled a steady pickup in economic activity, particularly later in the year. Fiscal discipline reinforced the effort, with the budget deficit shrinking to a multi-year low of 5.4% of GDP and the primary surplus swelling to 2.4% from the previous year.
On the external side, the current account swung to a surplus for the first time in more than 14 years. That, along with inflows tied to the International Monetary Fund’s Extended Fund Facility, allowed the SBP to buy foreign exchange in the interbank market, building reserves and steadying currency markets. “The CAB surplus, combined with increased financial inflows following the IMF’s Extended Fund Facility programme, enabled SBP to conduct significant foreign exchange purchases from the interbank market that strengthened foreign exchange reserves, and enhanced FX market stability,” the report said.
The central bank outlined steps to align with government goals, including overhauls of exchange companies and administrative tweaks to lift workers’ remittances. Those featured beefed-up bank incentives and diaspora engagement campaigns. Exporters, especially in information technology, got a boost via higher retention allowances to encourage reinvestment and innovation. Digital finance saw major advances in the push toward a less cash-dependent economy, with nationwide rollout of payment acceptance tools and deeper digitization of public disbursements.
The report spotlighted the debut of the National Financial Inclusion Strategy for 2024-28, targeting 75% inclusion overall and narrowing the gender divide to 25% by 2028. Supporting efforts included the National Financial Education Roadmap for 2025-29, ongoing enforcement of the Banking on Equality policy, and specialized pushes in Islamic banking, agriculture and small-business lending.
The SBP acknowledged recent policy shifts like tax and customs overhauls, freeing up agricultural markets and phasing out broad subsidies. But it stressed the imperative of pressing ahead with deeper structural and governance changes to lock in gains on prices and finance.
Global tariff adjustments in 2025 and Pakistan’s own floods that year loomed as hurdles. The SBP pledged to stay alert. It “remains vigilant, closely monitoring the evolving risks and factoring them into its policy decisions to safeguard price and financial stability, both of which are essential for achieving sustainable economic growth,” the report said.
Copyright © 2021 Independent Pakistan | All rights reserved
