SBP Maintains 2.5–3.5% Growth Forecast for FY25 Amid Cautious Optimism and Global Risks

The State Bank of Pakistan (SBP) has maintained its real GDP growth forecast for FY25 at 2.5% to 3.5%, citing improved macroeconomic indicators, stable external balances, and a significant drop in inflationary pressures. However, the central bank also flagged multiple global risks that could threaten Pakistan’s fragile recovery.

In its Half-Year “State of the Economy” report for FY25, the SBP highlighted both encouraging economic developments and a series of downside risks that could dampen momentum in the coming months.

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✅ Key Highlights of SBP’s FY25 Outlook:

• Real GDP Growth Projection: 2.5% to 3.5% (unchanged)
• Inflation Forecast: Revised downward to 5.5%–7.5%, from earlier 11.5%–13.5%
• Current Account: Projected between -0.5% to 0.5% of GDP
• Fiscal Deficit: Remains in the range of 5.5% to 6.5%

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📉 Improved Outlook Driven by Key Factors

The SBP attributed the brighter economic outlook to:

• Stronger-than-expected remittances
• Declining global commodity prices
• Sustained export performance, especially in high value-added textile sectors
• Stable external reserves, despite reduced financial inflows

Encouraging signs have also emerged in high-frequency indicators, with improved sales in automobiles, cement, and petroleum products suggesting a gradual pickup in domestic demand.

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⚠️ Major Risks Still Loom Over Growth

Despite the positive momentum, the SBP warned that several significant global and domestic risks could jeopardize economic stability:

1. Protectionist trade policies (such as the US and China tariff escalations) threatening exports and remittances
2. Geopolitical tensions and their impact on global commodity prices
3. A potential resurgence in global inflation, fueled by supply-chain disruptions and tariffs

At the local level, additional fiscal tightening, slow wheat production, and continued vulnerability in agriculture remain areas of concern.

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🌾 Agriculture Underperforms, Industry and Services Recover

While industry and services sectors are expected to benefit from softer energy prices and improved financing conditions, the agriculture sector remains weak, with lower wheat output and subdued crop forecasts.

The SBP cautioned that any unexpected spike in global commodity prices could push import costs higher, especially given the recent uptick in industrial import volumes.

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💸 Inflation Falls Sharply, But Challenges Persist

One of the most notable developments is the sharp disinflationary trend, aided by:

• Stable food prices
• Controlled energy costs
• Reduced international commodity price volatility

This has allowed SBP to revise average inflation projections down to 5.5–7.5%, a significant drop from earlier expectations. However, the bank acknowledged that inflation may rise slightly in the last quarter of FY25 due to base effects and possible energy price adjustments.

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🧾 Fiscal Health Depends on Revenue and External Stability

While fiscal performance improved in the first half of FY25, largely due to SBP profit transfers and subdued subsidies, tax revenue shortfalls remain a significant upside risk to the fiscal deficit target.

The SBP emphasized that stability is conditional on:

• Continued fiscal discipline
• No major shocks in global energy markets
• Predictable external financing flows
• Limited currency volatility

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📉 Conclusion: Balanced Caution Amid Global Uncertainty

The SBP’s report offers measured optimism for FY25 — backed by real improvements in inflation, exports, and remittances — but it also delivers a clear warning: Pakistan remains highly vulnerable to global economic headwinds.

The coming months will test Pakistan’s ability to navigate:

• Shifting global trade dynamics
• Emerging market financial pressures
• Local policy execution and reform delivery

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