Pakistan's economic recovery on shaky ground as fiscal mismanagement and policy paralysis threaten fragile gains

The central bank's assessment reveals that the modest recovery achieved through disciplined policies could easily unravel due to both domestic frailties and global shocks, as reported by The Express Tribune.

According to The Express Tribune, in his address to Parliament, SBP Governor Jameel Ahmad stated that while the central bank's tight monetary control, prudent exchange rate measures, and regulatory vigilance have anchored macroeconomic stability, the situation remains delicate.

"The forecast horizon is clouded by global tariff disputes and the devastation from the 2025 floods that disrupted crops and supply networks," he warned. The report shows inflation cooling dramatically to 4.5% in FY25 from a staggering 23.4% the previous year.

This decline was largely attributed to reduced domestic consumption, lower international commodity prices, and improved food availability. Consequently, the Monetary Policy Committee (MPC) cut the policy rate by 1,100 basis points during the first fiscal year of one of the most aggressive easing cycles in Pakistan's recent history.

However, the central bank noted that the battle was far from over. Persistent core inflation, rising global tariffs led by the United States, and geopolitical instability compelled the SBP to slow the pace of rate reductions in the latter half of FY25.

"Despite an improved inflation outlook, early relaxation in policy could reignite inflation," the SBP report cautioned. On the external front, the SBP rebuilt reserves worth $7.7 billion, keeping the Pakistani rupee relatively stable with just a 1.9% depreciation during the year, as cited by The Express Tribune.

Nonetheless, the central bank's optimism was tempered by warnings of structural weaknesses. The rising imports, fiscal slippages, and overdependence on remittances could reignite inflation and undermine competitiveness.

The SBP urged the government to focus on sustainable reforms and productivity-led growth to safeguard Pakistan's fragile economic foundation, as reported by The Express Tribune. (ANI)