KARACHI: The State Bank of Pakistan (SBP) has called for wide-ranging structural reforms to place the economy on a path of higher, sustainable and inclusive growth.

Releasing its Monetary Policy Report (MPR) on Wednesday, the central bank said reforms were particularly needed to boost productivity, promote exports, expand the tax base, address financial losses and inefficiencies in the public sector, ease tariff and infrastructure bottlenecks in the energy sector, and deepen the financial system.

The SBP said achieving fiscal consolidation in FY26 would be challenging but essential for preserving macroeconomic stability and achieving long-term growth. Sustaining these efforts, it stressed, would depend on structural reforms to widen the tax base, improve public financial management and enhance spending efficiency. Some progress, it noted, was already being made by the government and relevant stakeholders, including the SBP.

The report said the full impact of recent policy rate cuts was expected to materialise in the coming quarters, supporting a gradual recovery in investment and consumption demand.

Warns achieving fiscal consolidation in FY26 will be difficult

On the external side, the SBP noted that a sharp decline in international rice prices, caused by increased supplies from regional exporters, had adversely affected Pakistan’s export receipts. Meanwhile, softer global cotton prices could reduce the cost of imported inputs for the domestic textile sector.

While the global growth outlook had improved marginally, trade-related uncertainty persisted, posing mixed prospects for emerging markets, including Pakistan, and suggesting continued challenges for exports in the near to medium term.

Domestically, aggregate demand was firming up, supported by improved business and consumer confidence, better credit conditions following substantial policy rate cuts, and subdued inflationary pressures. The MPR said economic activity was improving without creating excessive inflationary or external account pressures.

Real GDP growth rose to 3.9pc in the second half of FY25 from 1.4pc in the first half, bringing full-year growth to 2.7pc. The inflation outlook, however, remained vulnerable to several risks, including volatile global oil prices, unexpected adjustments in administered energy tariffs, and shifts in the trade outlook.

The SBP warned that potential volatility in global commodity prices, particularly energy and food, could affect both the external account and domestic inflation. Recent trade-related tariff measures abroad could also dampen external demand for Pakistani exports.

Inflation, which had been in double digits earlier, has declined steadily since the start of FY25 and is now within the medium-term target range of 5-7pc.

Published in Dawn, August 14th, 2025