By Riaz Hussain :
The State Bank of Pakistan (SBP) has said that although the country’s economy is showing clear signs of stabilisation, the overall outlook remains exposed to domestic and external risks, underscoring the need for sustained policy discipline and deep structural reforms.
In its latest bi-annual Monetary Policy Report (MPR), the central bank noted that key economic indicators are improving, but warned that multiple short- and medium-term challenges could affect the recovery.
The SBP emphasised the importance of boosting productivity and exports, broadening the tax base, and addressing inefficiencies in the public and energy sectors to ensure durable and inclusive growth.
The report projected inflation to stabilise within the medium-term target range of 5–7 percent during most of FY26 and FY27. It also expects the current account deficit to remain contained at 0–1 percent of GDP in FY26, while economic activity is picking up at a faster-than-anticipated pace.
The SBP attributed the improving outlook to prudent monetary and fiscal policies. However, it cautioned that the macroeconomic trajectory remains vulnerable to evolving global and domestic risks, including volatility in commodity prices, tariff-related uncertainties, below-target revenue collection, and potential climate-related shocks.
Tax revenue performance remains a concern. During July–December FY26, the Federal Board of Revenue (FBR) recorded a shortfall of around Rs331–335 billion against its target. In the first four months of the fiscal year, the shortfall stood at Rs274 billion, while January 2026 alone saw a gap of about Rs16 billion.
The original annual tax target of about Rs14.1 trillion has since been revised to around Rs13.98 trillion.
The SBP also highlighted pressures on exports, citing weak global prices, particularly for rice, border disruptions with Afghanistan, subdued international demand due to trade tensions, and rising competition in key markets. These factors could dampen export volumes and industrial output.
The report identified structural weaknesses such as a low export-to-GDP ratio, narrow export base, weak investment, limited access to finance, and inconsistent tax and trade policies. Addressing these issues is essential for shifting the economy toward an investment- and export-led growth model, the SBP said.
On the external front, the central bank expects foreign exchange reserves to rise to $18 billion by June 2026 and increase further in FY27, approaching three months of import cover. The current account is projected to remain manageable, supported by strong remittances and planned official inflows.
Economic growth prospects have also improved amid stabilisation, easier financial conditions, and a reduction in the Cash Reserve Requirement to five percent. The SBP now projects real GDP growth between 3.75 and 4.75 percent in FY26, with further acceleration expected in FY27.
The central bank stressed that continued fiscal discipline, positive real interest rates, and sustained progress on structural reforms will be crucial to strengthening economic resilience and achieving long-term, sustainable growth.
