Prudent monetary policy, fiscal consolidation behind improved macroeconomics: SBP

Pakistan’s central bank said that the country’s macroeconomic conditions and outlook have improved, citing a prudent monetary policy stance and continued fiscal consolidation, as it released its biannual Monetary Policy Report.

In its bi-annual Monetary Policy Report (MPR) released on Monday, the State Bank of Pakistan (SBP) noted that inflation is projected to remain within the 5 to 7% target range during most of FY26 and FY27, despite some near-term volatility.

The current account deficit is projected to remain contained at 0 to 1% of GDP in FY26, with a higher trade deficit partly expected to be offset by robust workers’ remittances and planned official inflows.

As a result, SBP’s FX reserves are expected to rise to $18 billion by June 2026 and increase further in FY27, reaching close to 3-months of import cover.

Economic activity has also strengthened, amidst ongoing macroeconomic stabilization, ease in financial conditions, and the recent reduction in the Cash Reserve Requirement to 5%.

Accordingly, economic growth prospects have improved, and real GDP growth is now projected in the range of 3.75 to 4.75% for FY26, and growth is expected to increase further in FY27.

The MPR also underscored evolving risks to the macroeconomic outlook.

While the risk of widespread impact from the recent floods have receded, uncertainty from global tariff-related developments persists, alongside volatility in global commodity prices.

Domestically, challenges from below-target revenue collection and the impact of potential adverse climate events remain sources of vulnerability for the outlooks of inflation, external account and GDP growth.

In this context, it is important to speed up the progress on structural reforms to increase the economy’s resilience to adverse shocks, and to improve productivity and plug losses of state-owned enterprises.