The State Bank of Pakistan (SBP) reported significant improvements in Pakistan’s macroeconomic conditions for the fiscal year 2023-24, attributing success to a combination of factors including effective engagement with the International Monetary Fund (IMF), stabilisation policies, and increased domestic agricultural productivity.
The SBP’s Annual Report highlighted a moderate recovery in real GDP, primarily driven by a record harvest of wheat, rice, and a rebound in cotton production. This agricultural productivity contributed to better macroeconomic outcomes. The current account deficit narrowed to a 13-year low due to strong growth in remittances and exports, which offset a slight increase in imports.
Pakistan’s foreign exchange reserves improved, buoyed by the IMF’s Stand-By Agreement and inflows from other multilateral and bilateral sources. This helped stabilize the exchange rate and reduce the public debt-to-GDP ratio. The SBP maintained a tight monetary policy, keeping the policy rate at 22% for most of FY24, which was later reduced to 20.5% as inflation pressures eased.
Inflation peaked at 38% in May 2023 but dropped to 12.6% by June 2024, averaging 23.4% for the fiscal year. This decline was supported by fiscal consolidation, lower global commodity prices, and reforms in the foreign exchange market. The primary balance posted a surplus for the first time in 17 years, reflecting fiscal discipline.
Despite these positive developments, the SBP report identified several structural challenges. These included low investment and savings, an unfavourable business environment, lack of research and development, and low productivity. The energy sector’s inefficiencies and the accumulation of circular debt remained significant issues. The government’s efforts to address energy challenges through price adjustments were acknowledged, but broader sectoral reforms were deemed necessary.
The report emphasized the need for reforms in State-Owned Enterprises (SOEs) to address fiscal constraints and inefficiencies. It recommended sectoral policy changes, effective corporate governance, and creating a competitive environment supported by political consensus.
Looking ahead, the SBP projected continued macroeconomic improvement in FY25, supported by the IMF’s Extended Fund Facility (EFF) program. This program was expected to strengthen Pakistan’s external account position, improve its sovereign credit rating, and boost investor confidence. Additionally, the global economic environment, with falling inflation in advanced economies and steady growth, would benefit Pakistan.
Inflationary pressures were anticipated to weaken further in FY25, with fiscal consolidation and tight monetary policy playing crucial roles. The SBP projected real GDP growth in the range of 2.5%–3.5%, driven by lower borrowing costs and a recovery in large-scale manufacturing (LSM) and the services sector.
The SBP report highlighted that successful engagement with the IMF, improved agricultural productivity, and effective policy measures significantly improved Pakistan’s macroeconomic conditions in FY24, with positive prospects for continued growth and stability in FY25.
