Pakistan’s economy is showing signs of cautious revival as key indicators reflect stabilization. A notable drop in average inflation, a rise in remittance inflows, and improved external account dynamics have all contributed to renewed optimism. While challenges remain—particularly in managing rising imports and external debt—proactive policy measures by the State Bank of Pakistan (SBP) and the government have fortified the country’s financial footing.
The International Monetary Fund has recalibrated Pakistan’s growth trajectory for the fiscal window of 2025–26, slicing its projection to 3.6%, a more restrained benchmark than Islamabad’s spirited anticipation of 4.2%. Unveiled in its newly circulated dossier, World Economic Outlook Update: Global Economy—Tenuous Resilience amid Persistent Uncertainty, the Fund nudged its FY2024–25 foresight upward—albeit marginally—by 0.1%, repositioning it at 2.7%.
This subtle upward shift echoed the recent communique issued by Pakistan’s Finance Division in June 2025, which documented a realized GDP progression of 2.68% for the preceding financial epoch—lending numerical credence to the Fund’s tempered recalibration. In kindred assessments, the World Bank has mapped Pakistan’s upcoming GDP augmentation at 3.1% for FY2026. The Asian Development Bank mirrored this tempered buoyancy, anchoring its forecast at 3%. Notably, ADB’s earlier projection for FY2025—previously at 2.5%—was modestly uplifted to 2.7%, signaling a guarded confidence in economic stabilization amid stormy fiscal currents.
Casting the lens globally, the IMF foresees the planetary economic engine to hum at a consistent 3% in 2025, inching toward 3.1% by 2026. These tweaks—an elevation of 0.2 and 0.1 percentage points respectively—mark a slight divergence from the IMF’s April 2025 foundation.
Driving this tempered uplift are a medley of coalescing factors: agile preemptive responses to trade tensions, relaxed global liquidity settings stirred by a softening dollar, and fiscal infusions in major economies. These influences, braided together, lend modest vitality to a still-fragile global economic skeleton.
The bulletin further divulged that worldwide headline inflation is set to deflate to 4.2% in 2025, tapering further to 3.6% in 2026. These trajectories largely hew to April’s prognosis, though the report cautions that such averages obscure dissonant national realities. For instance, the United States is forecasted to breach inflation targets, whereas other economic titans may experience more subdued price flux.
Still, the specter of risk looms large. The IMF reiterated its caveats from April 2025, underscoring that downside hazards—ranging from geopolitical disarray to tightening financial conditions—remain a constant shadow to these figures.
Back on home soil, the State Bank of Pakistan has opted to tether the policy interest rate at 11%, attributing this decision to stable price indices and glimmers of fiscal vitality. Governor Jameel Ahmed disclosed that inflation now rests at 7.2%, with faint upticks traced in the months of May and June.
The average inflation rate for the last fiscal year was 4.5%. Food inflation and core inflation both saw reductions last year, although core inflation is expected to rise again in the coming months. Exports have increased modestly, growing by 4%, while remittances rose by $8 billion last fiscal year, supporting the country’s external account surplus for the first time in 14 years. Imports grew by 11%, with non-oil imports rising 16%, driven by stronger economic activity.
Despite a current account surplus in 2023, the SBP projects a deficit of up to 1% of GDP for the current fiscal year, mainly influenced by rising imports. Remittances are expected to exceed $40 billion this year. Economic growth is forecast between 3.25% and 4.25% for the ongoing fiscal year, with improvements expected in the agricultural sector due to favourable rainfall and water availability.
The industrial and services sectors are also expected to perform well. Pakistan’s external debt repayments remain substantial, with $25.9 billion due this fiscal year. However, debt servicing costs have decreased due to lower interest rates on new loans and longer repayment terms.
International credit rating agencies have upgraded Pakistan’s credit rating, reflecting improved debt sustainability. Governor Ahmed said the SBP and the government successfully managed external payments last year, with reserves increasing by $5 billion despite $10 billion in debt repayments.
The central bank has actively intervened in the interbank market to stabilise the exchange rate, and the banking sector has fully met import and foreign exchange demands.
Pakistan’s foreign exchange reserves currently exceed $14 billion, surpassing the country’s debt obligations for this year. The reserves are projected to reach $15.5 billion by December, with the central bank setting a target of $17.5 billion for June 2026.
The issuance of Eurobonds could further boost these reserves. The SBP regulates and monitors two legal foreign exchange markets: the interbank market and exchange companies. However, an illegal currency market also operates in the country, which falls outside the SBP’s jurisdiction and is controlled by law enforcement agencies. The SBP said it actively supervises the legal markets and intervenes promptly when necessary. Any information regarding illegal market activity is promptly shared with security agencies for action.
The government will take strict measures to control gold smuggling at the national level. He stated that policy actions related to remittances will be implemented to support and regulate the flow of funds from abroad. The government will continue its supportive schemes aimed at facilitating remittances. Additionally, law enforcement agencies have been tasked with preventing illegal activities.
With inflation under control, remittances hitting historic highs, and reserves on an upward trajectory, Pakistan’s economic narrative is shifting from volatility to cautious optimism. Sustained focus on curbing illegal financial flows, supporting formal markets, and incentivizing remittance channels will be pivotal in maintaining this momentum. As the government and SBP steer through complex fiscal terrain, the groundwork laid today may pave the way for broader macroeconomic stability and growth in the near future.