Despite a decline in the Consumer Price Index (CPI), the State Bank of Pakistan has decided to keep the discount rate unchanged at 11 percent.

It may be added here that the CPI has been on the downtrend since November 2024 — from 4.9 percent, to 4.1 percent in December, 2.4 percent in January, 1.5 percent in February, 0.7 percent in March and 0.3 percent in April. Previously, the SBP reduced the discount rate to 13 percent on December 16, 12 percent on January 12 and 11 percent on May 5.

Explaining the decision, the SBP Monetary Policy Statement (MPS) has pointed out that there are emerging signs of a global economic recovery. The MPS has also underlined notable year-on-year growth in automobile sales, fertilizer off-take, credit to private sector, imports of intermediate goods and machinery. At the same time, private sector credit rose from 323.5 billion rupees in 2023-24 to 676.6 billion rupees in July-June 2024-25 with the rise associated with the stock market rather than the LSM.

However, the MPC has failed to take notice of the fact that the large-scale manufacturing (LSM) growth was at negative 1.52 percent during July-April 2025 against 0.26 percent in the comparable period of the year before. In this context, it is relevant to take note of the observation by the IMF in its May 2025 documents uploaded on its website titled the first review under the extended arrangement: “while the reduction in headline inflation has been impressive, core inflation remains elevated, and the SBP should continue to calibrate monetary policy carefully, removing monetary constraint gradually and contingent on clear evidence that inflation is firmly anchored within SBP’s target range”.

According to experts, the central bank has taken a cautious approach with a view to ensuring price stability amid a surge in energy prices that has worsened the inflation outlook.

On the other hand, the finance ministry’s Monthly Economic Update and Outlook for July, the first month of the ongoing fiscal year, paints a mixed picture of the economy. Firstly, it fails to reconcile budget deficit data — citing it as 3.1 percent at the outset and 3.7 percent on the next page, which is a difference of 0.6 percent with major implications on inflation data claimed by the Pakistan Bureau of Statistics. Secondly, the report maintains that total expenditure rose by 16.3 percent last fiscal year to 14,053.1 billion rupees from 12,086.5 billion rupees in 2023-24 — a rise primarily attributed to Public Sector Development Programme (PSDP), which increased by 44.1 percent compared to a moderate increase in current expenditures (13.1 percent).

But there are some contradictions involved in these numbers. The budget documents for 2025-26 show total expenditure at 17,249 billion rupees in the revised estimates of 2024-25 against the budgeted 18,877 billion rupees and not 14053.1 billion rupees. Again, the budgeted federal PSDP for 2024-25 was 1400 billion rupees, which was downgraded to 1,100 billion rupees due to lack of funds — a decline of 21.4 percent. By the end of May 2025 the Ministry of Planning, Development and Special Initiatives stated that it authorised 1,036 billion rupees for PSDP; however, disbursement was acknowledged at 596 billion rupees, an amount that was upped to 662 billion rupees by Secretary Finance on 13 June 2025 during the parliamentary standing committee meeting on Finance convened to discuss the budget proposals. The secretary also revealed that PSDP had been further downgraded to 967 billion rupees — a target that he confirmed would also not be achieved.

According to the ministry, large-scale manufacturing (LSM) registered positive 0.86 percent July-May 2024 against negative 1.21 percent in the comparable period 2025. However, the July-March 2024 LSM data was earlier cited at negative 0.22 percent against negative 1.47 percent in 2025. In this context it is relevant to note that in 2024 the growth in the LSM was noted in the July-May data at positive 0.86 percent as the July-March LSM growth was cited at negative 0.22 percent.

In the given situation, two positive economic indicators are a rise in remittance inflows and foreign exchange reserves. The former rose by about 8 billion dollars in 2025 compared to 2024. It is reported that in June 2025 the Bureau of Emigration and Overseas Employment registered 51,072 workers, a 17.8 percent increase from 43,356 in June 2024. The June 2024 emigrants no doubt contributed to higher remittance inflows. As for the USD 14.5 billion reserves, they are primarily debt-based.

The State Bank Governor himself recently stated that the rollovers from friendly countries, for one year, are about USD 16 billion. The upshot is that the economy is not yet out of the woods. For long-term economic revival, apart from structural reforms, the authorities concerned need to take appropriate and timely policy decisions in response to the emerging challenges.