Pakistan’s Economy Gains Momentum as SBP Reports Lowest Fiscal Deficit in 9 Years

Pakistan’s economy is showing clear signs of recovery and stability, with the State Bank of Pakistan (SBP) confirming that the fiscal deficit has fallen to a nine-year low and inflation dropped to its lowest level in eight years during FY2024-25.

According to the SBP’s annual report released Thursday, economic growth strengthened mainly through the services sector and a rebound in industrial output, while steady remittances and foreign inflows helped maintain external stability. “Prudent monetary policy and fiscal consolidation have played a key role in restoring macroeconomic balance,” the report stated.

Inflation fell sharply from 23.4% in FY24 to 4.5% in FY25, thanks to stable food supplies, a stronger rupee, and declining global commodity prices. This positive trend allowed the Monetary Policy Committee to slash the policy rate by 1,100 basis points between June 2024 and June 2025, easing borrowing conditions for businesses and consumers.

The SBP also credited the government’s continued fiscal discipline and a surge in central bank profits for narrowing the deficit. The primary balance remained in surplus for the second consecutive year, reflecting improved financial management.

However, the central bank cautioned that challenges such as a weak savings rate, informal economy, and climate-related shocks could slow long-term progress. “Recent floods have again underscored the urgency for climate resilience and structural reforms,” the SBP warned.

International confidence in Pakistan’s economy has improved as well, with all three major rating agencies upgrading the country’s outlook in 2025. Looking ahead, the SBP expects GDP growth between 3.25% and 4.25% in FY26, while inflation is projected to stabilize near 5–7% by FY27, assuming global prices and domestic demand remain steady.