Pakistan central bank says impact of 2025 floods 'manageable'

The State Bank of Pakistan has noted that the overall impact of this year’s flooding is expected to be significantly lower than in 2022, as the quantum of losses to agricultural output is less than the tragedy three years ago.

Pakistan on Monday kept its key interest rate unchanged at 11% to manage the inflation, which could go up as destruction caused by floods is expected to push food prices and slow economic growth in the coming months.

During an analyst briefing after the monetary policy announcement, the State Bank of Pakistan management said that while rice output and exports will be partially affected by floods, the scale of the shock is far less severe than in 2022. The country will have to import food products, but the overall impact on the external account “will stay manageable”.

For example, only 25.6% of rice output is in affected districts compared to 62% in 2022. Maize, however, faced higher damage, with 19% of total output in affected areas versus just 2% in 2022.

The central bank compared the recent floods with past major events in 2011 and 2022. SBP highlighted that current economic conditions are more favorable to absorb the impact of floods. The CPI inflation is much lower at 4.1% against 12.4% in 2011 and 24.9% in 2022, while the policy rate stands at 11% compared to 12.5% and 15% previously.

Additionally, lower international oil prices, around $70 per barrel versus $106 per barrel in 2022, provide further support to the external account.

SBP Governor Jameel Ahmed noted that remittances are expected to increase after the flood, as seen in 2022 and during the Covid-19 pandemic.

The governor highlighted that remittances might exceed the $40 billion target set for FY26. While the official estimate has not been revised, he indicated that inflows could exceed projections by $0.5–1.0 billion.

External obligations

In an update on external debt obligations for FY26, the SBP governor said total requirements stand at $26.1 billion, comprising $22 billion in principal repayments and $4.1 billion in interest payments. So far, $3.5 billion of these obligations have been managed, with $1.5 billion already repaid and $2 billion rolled over.

Despite these positive outlooks, the central bank noted that the near-term macroeconomic outlook has slightly weakened due to the ongoing floods. This temporary but notable flood-related supply shock, especially in the crop sector, may put upward pressure on headline inflation and the current account deficit in FY26.

The Monetary Policy Committee (MPC) highlighted several key developments since its last meeting.

SBP’s foreign exchange reserves remained stable despite net debt repayments and a current account deficit. Inflation expectations among both consumers and businesses edged higher in September. FBR tax collections for July-August 2025 slightly missed the target, though they showed strong year-on-year growth. On the external front, the US announcement of revised import tariffs has helped ease some global trade uncertainty.

SBP management stated that local wheat prices are higher compared to international wheat prices, if the government. allows imports, then it would immediately relieve domestic price pressures.

In agriculture, Kharif crops have suffered losses due to recent floods, while post-flood supply disruptions may temporarily weigh on manufacturing and services sectors. At the same time, prospects for Rabi crops appear somewhat improved, with higher yields expected.

Overall, these developments suggest a moderated growth outlook for FY26.