KARACHI – Pakistan’s macroeconomic conditions strengthened further in FY25, supported by a prudent monetary policy stance and sustained fiscal consolidation that led to a sharp drop in National CPI (NCPI) inflation.
According to the Governor’s Annual Report (GAR) for FY25 of (GAR unveiled by the State Bank of Pakistan (SBP) on Friday, the financial system remained resilient and real GDP growth edged higher.
According to the Report prepared for the Parliament, the disinflationary trend that began in FY24 became more pronounced during FY25. Average National CPI inflation dropped sharply to 4.5 per cent from 23.4 per cent in FY24 and 29.2 per cent in FY23.
The Report notes that the decline was broad-based, with food inflation contributing the most due to improved availability of food commodities in the domestic market and lower international food prices. Energy inflation also decreased substantially, which benefited from downward adjustments in administered energy tariffs amid softer global oil prices. Core inflation nearly halved, reflecting contained domestic demand, anchored inflation expectations, and the easing of second-round effects from previous years’ shocks to food and energy prices.
The Report highlights that, responding to the improved inflation outlook, the Monetary Policy Committee (MPC) reduced the policy rate by a cumulative 1,100 basis points between June 2024 and June 2025. However, it notes that due to lingering uncertainties—including sticky core inflation during H2-FY25, evolving global trade tariffs, rising geopolitical tensions, and volatility in administered energy prices—the MPC slowed the pace of monetary easing in the second half of FY25.
This measured stance facilitated a notable expansion in private sector credit and supported a gradual recovery in economic activity, especially in the latter part of the fiscal year. With the fiscal deficit narrowing to a multi-year low of 5.4 per cent of GDP, and the primary surplus more than doubling to 2.4 per cent, fiscal consolidation supplemented the monetary policy stance to help bring inflation down, the report said.
The GAR FY25 also notes the significant improvement in the external sector, with the current account balance (CAB) posting a surplus for the first time in over fourteen years. 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 highlights the resilience of Pakistan’s financial system, noting that the banking sector exhibited stability across all major indicators and saw further improvements in solvency metrics. The adoption of IFRS-9 since January 2024 strengthened banks’ risk management frameworks and enhanced their loss-absorption capacity. Banking sector assets expanded to nearly 52.4 per cent of GDP, up from 49.1 per cent in FY24.
The GAR FY25 highlights several measures taken by SBP as part of its tertiary objective to support the government’s economic policy objectives. Significant strides were also made in the digital payments landscape in an ongoing effort to promote a cashless economy. The Report notes the establishment of Raast Payments Pakistan (Pvt.) Ltd. to oversee the operations and governance of the Raast system, the launch of the enhanced PRISM+ settlement system with integrated Central Securities Depository features, and the introduction of a Regulatory Sandbox Framework for payment innovation. Additionally, SBP implemented digital payment acceptance solutions nationwide along with further digitisation of government payments.
