Pakistan’s central bank is striking an optimistic tone as the country’s economic recovery gains momentum. On February 11, the Governor of the State Bank of Pakistan (SBP) shared a bullish growth outlook, projecting that the economy would expand between 3.75% and 4.75% in fiscal year 2026 — a forecast that notably surpasses projections recently put forward by the International Monetary Fund (IMF).
A Vote of Confidence from the Top
Speaking at a press briefing following the Monetary Policy Committee’s latest decision, the SBP Governor expressed confidence that Pakistan’s economic fundamentals are strengthening. The projected growth range of 3.75% to 4.75% reflects the central bank’s assessment that key sectors — including agriculture, manufacturing, and services — are on a steady recovery path after years of turbulence marked by inflation, external account pressures, and a challenging fiscal environment.
The central bank’s forecast is notably more optimistic than what the IMF recently outlined for Pakistan. While the Fund has acknowledged signs of stabilization, its projections have remained more conservative. The divergence signals that Pakistan’s policymakers believe domestic conditions and reform momentum are better than what external assessments give credit for.
Policy Rate Held Steady at 10.5%
In a widely anticipated move, the Monetary Policy Committee decided to keep the benchmark policy rate unchanged at 10.5%. This decision follows a series of significant rate cuts over the past several months, which brought the rate down from a historic high of 22% in a deliberate effort to stimulate economic activity and ease financial conditions for businesses and consumers.
By holding the rate at 10.5%, the SBP is signaling that it wants to consolidate the gains already made from earlier monetary easing. Inflation, which had spiraled to crippling double-digit levels in previous years, has been on a sustained downward trend. The central bank appears keen to ensure that this disinflation path holds before committing to further reductions.
The pause also reflects a degree of caution in a global environment where central banks remain watchful of external shocks, commodity price volatility, and shifting capital flows — all of which can quickly alter the inflation landscape in import-dependent economies like Pakistan.
What Is Driving the Optimism?
Several factors underpin the central bank’s more confident outlook. Remittance inflows have remained robust, providing a critical lifeline to foreign exchange reserves. The agricultural sector has recovered from the devastating floods of recent years, and large-scale manufacturing has shown signs of revival as import restrictions eased and energy supply improved.
Pakistan’s ongoing engagement with the IMF under its Extended Fund Facility has also helped restore confidence among investors and multilateral lenders. The disbursement of loan tranches tied to fiscal and structural reforms has stabilized the external account and kept the rupee from experiencing the wild swings seen in prior years.
Furthermore, a significant decline in inflation — from peaks above 38% to more manageable levels — has improved real household incomes and revived domestic demand, both of which are key drivers of economic growth.
The Road Ahead
While the outlook is more positive than it has been in several years, challenges remain. Fiscal consolidation, revenue mobilization, energy sector reforms, and improving the ease of doing business are all critical elements for sustaining growth beyond the short term.
The SBP’s confidence in a 3.75%–4.75% growth range is an encouraging signal, but economists caution that structural reforms must deepen for Pakistan to achieve the higher, more inclusive growth rates needed to meaningfully improve living standards and reduce poverty.
For now, the central bank’s message is clear: Pakistan’s economy is on a more stable footing, and the groundwork laid over the past year is beginning to bear fruit.
