Banking Assets Rise to 52.4% of GDP, Inflation Falls to 4.5%

KARACHI: Pakistan’s banking sector assets surged to 52.4% of GDP in FY25, up from 49.1% the previous year, signaling bolstered financial stability and enhanced risk management, per the State Bank of Pakistan (SBP)’s Governor’s Annual Report (GAR).

The report highlighted that adopting International Financial Reporting Standard (IFRS-9) in January 2024 fortified banks’ loss-absorption capacity and solvency. However, it flagged concerns over limited private sector lending, with banks heavily reliant on government securities for profits, echoing findings in the SBP’s State of Pakistan’s Economy report released a day prior.

Macroeconomic indicators strengthened in FY25, driven by tight monetary policy and sustained fiscal consolidation. Average Consumer Price Index (CPI) inflation plummeted to 4.5% in FY25, down from 23.4% in FY24 and 29.2% in FY23, marking two years of disinflation.

The decline stemmed from improved food supplies, stable exchange rates, and lower global commodity and energy prices. Energy inflation eased due to downward tariff revisions and falling international oil prices.

The Monetary Policy Committee (MPC) slashed the policy rate by a cumulative 1,100 basis points from June 2024 to June 2025, though easing slowed later due to persistent core inflation, rising trade tariffs, and geopolitical uncertainties.

Fiscal performance saw notable gains, with the deficit shrinking to a multi-year low of 5.4% of GDP in FY25 and the primary surplus rising to 2.4% of GDP.