SBP Reports Improved Outlook in Bi-Annual Review

The State Bank of Pakistan has released its bi-annual Monetary Policy Report, noting an improvement in Pakistan’s macroeconomic environment and outlook, underpinned by a calibrated monetary policy stance and sustained fiscal consolidation efforts.

The report projects that inflation will largely remain within the central bank’s target corridor of 5–7% throughout most of FY26 and FY27, notwithstanding short-term fluctuations. The current account deficit is expected to remain contained within a range of 0–1% of GDP in FY26, as elevated trade deficits are partially offset by robust workers’ remittances and anticipated official financial inflows.

According to the SBP, foreign exchange reserves are forecast to increase to $18 billion by June 2026 and rise further during FY27, reaching levels equivalent to nearly three months of import coverage. Economic activity has gained momentum amid macroeconomic stabilisation, easing financial conditions, and a recent reduction in the Cash Reserve Requirement to 5%. As a result, the central bank has revised its real GDP growth forecast for FY26 upward to 3.75–4.75%, with stronger growth anticipated in FY27.

The report also highlighted risks to the outlook, stating that although the likelihood of widespread economic disruption from recent flooding has diminished, uncertainties linked to global tariff-related developments and volatility in international commodity prices persist. On the domestic front, weaker-than-targeted revenue collection and the risk of adverse climate events were identified as key factors that could affect inflation, the external sector, and overall economic growth.

The SBP stressed the importance of expediting structural reforms to enhance economic resilience, improve productivity, and reduce inefficiencies and losses in state-owned enterprises. The report further included analytical assessments covering monetary policy transmission following prior policy rate reductions, the application of heat maps to evaluate economic activity, and the role of surveys and structured engagement with private-sector stakeholders in shaping monetary policy decisions.