Pakistan Determined to Avoid Past Economic Pitfalls, Says SBP Governor

The State Bank of Pakistan (SBP) is committed to avoiding the recurrence of previous errors, such as excessively rapid increases in demand and economic expansion, stated SBP Governor Jameel Ahmad on Monday.

Speaking at the introduction of the Women Entrepreneurs Finance Code by SBP, Ahmad voiced his optimism that the present shift from carefully achieved economic stability toward growth would prove sustainable. This is in contrast to the repeated cycles of boom and bust observed in recent times.

He cited the substantial accumulation of the nation’s foreign exchange reserves (held by SBP) as a key factor underpinning his confidence in attaining lasting economic advancement this time. The SBP’s FX reserves have increased fivefold to $14.5 billion, a significant rise from under $3 billion at the beginning of 2023.

“This reserve increase is a result of our FX acquisitions from domestic currency markets, including the inter-bank market, rather than external debt obtained by the government, as occurred between 2015 and 2022,” he clarified.

Ahmad also highlighted the marked decrease in the inflation rate, the transition of the current account to a surplus, and the rise in SBP FX reserves. “The exchange rate demonstrates relative stability, and economic growth is gradually gaining pace… Importantly, the present economic outlook is considerably more encouraging than it was a couple of years ago,” he added.

He noted that because of the rigorous yet essential macroeconomic stabilization measures put in place by both the SBP and the government, “we have emerged from the challenging period.”

Economic Recovery Underway

Ahmad cautioned, “The stabilization phase has frequently been succeeded by a boom-bust pattern. To prevent a recurrence of these patterns, it is essential to refrain from repeating prior errors such as excessively accelerating demand and economic growth, particularly in sectors that are inward-focused.”

“Economic growth is exhibiting indications of a progressive, consistent, and sustainable rebound. Unlike prior boom-bust cycle occurrences, the current policy mix encourages a durable expansion in economic activity, instead of a superficial and unsustainable surge. With increased emphasis now being placed on structural reforms, we are confident that this period will represent a genuine turning point for Pakistan’s economy,” he asserted.

Ahmad explained that the confidence in achieving sustainable economic growth is strongly reinforced by a nine-year low headline inflation reading, averaging 4.5% in fiscal year 2024-25. He stated, “We hold increasing confidence that, through a judicious and coordinated combination of monetary and fiscal policies, inflation will stabilize within the target range of 5% to 7%.”

He also pointed out the stability of the FX market, adding, “The current account balance is anticipated to remain supportive, buoyed by strong remittances and resilient exports, despite rapid expansion in both the value and volume of imports corresponding with the ongoing economic recovery.”

He asserted that fiscal policy has proactively aided monetary tightening, as seen in the second consecutive primary surplus in fiscal year 2025. “Both tax and non-tax revenues have demonstrated considerable growth, while overall expenditures have remained comparatively controlled. The Government of Pakistan aims for a higher primary surplus for the fiscal year 2026.”

Finally, and most importantly, focus is now being directed towards reforms aimed at resolving structural problems. “Initiatives to broaden the tax base, privatize state-owned entities (SOEs), and liberalize trade will foster greater efficiency, strengthen the role of the private sector, and intensify competition,” he concluded.

The State Bank of Pakistan, in collaboration with the Asian Development Bank, has launched the Women Entrepreneur Finance Code, supported by a $500 million loan initiative designed to aid women-led enterprises.

Approximately 20 banks and financial institutions have joined the initiative, with additional backing from the World Bank.