Pakistan’s central bank anticipates economic growth of up to 4.75 percent for the current fiscal year, a projection that diverges from a recent downgrade issued by the International Monetary Fund (IMF).
Growth Forecast Revision
State Bank of Pakistan (SBP) Governor Jameel Ahmad, in responses to Reuters, stated the country’s recovery is “broader and more durable” than indicated by export figures. The SBP raised its FY26 growth forecast to a range of 3.75–4.75 percent at its January meeting, an increase of 0.5 percentage points, despite a contraction in exports and a widening trade deficit.
Ahmad attributed differences in projections between the SBP and the IMF to timing issues, specifically the IMF’s inclusion of assessments related to recent floods. He noted that indicators and data from the first quarter of FY26 suggest a recovery across all sectors of the economy.
Agricultural activity has proven resilient despite the floods and is, according to the SBP, even exceeding targets. Financial conditions have also eased, with the full impact of the policy rate cuts still expected to be felt.
Navigating Economic Challenges
The SBP held its benchmark interest rate at 10.5 percent last month, contrary to expectations of a reduction. This divergence in outlook occurs as Pakistan emerges from a balance-of-payments crisis, currently supported by a $7 billion IMF program.
While exports declined in the first half of the fiscal year, Ahmad indicated this was due to low global prices and border disruptions, not a weakening of economic activity. The current account deficit is projected to remain within 1 percent of GDP, supported by strong remittances and anticipated inflows related to Eid.
Pakistan is also planning to issue panda bonds – yuan-denominated debt – in China around the upcoming Lunar New Year to diversify its financing options. The SBP has been consistently purchasing dollars in the interbank market to bolster foreign exchange reserves.
Frequently Asked Questions
What is the SBP’s current growth forecast for FY26?
The SBP projects growth of 3.75–4.75 percent for FY26.
What factors contributed to the difference in projections between the SBP and the IMF?
The SBP governor cited timing issues and the IMF’s incorporation of flood-related assessments as contributing factors.
What is Pakistan planning to do to diversify its external financing?
Pakistan plans to issue panda bonds, a yuan-denominated debt sold in China’s domestic market.
Given these projections and ongoing economic adjustments, how might Pakistan’s approach to structural reforms influence its long-term economic stability?
