By S.M. Inam
The State Bank of Pakistan’s recent decision to hold the policy interest rate at 10.5 per cent for the next two months is being presented as a marker of stability. Governor Jameel Ahmed, speaking after the Monetary Policy Committee’s meeting, also announced a one-percentage-point reduction in the cash reserve ratio, bringing it down to five per cent, a move intended to ease liquidity in the banking system. Inflation in December remained moderate at 5.6 per cent, with core inflation steady at 7.4 per cent, while economic growth has exceeded expectations, with GDP projected to expand between 3.75 and 4.75 per cent in fiscal year 2026. Yet beneath these headline figures lies a more troubling story.
Pakistan’s trade deficit has widened due to rising imports, while remittances and ICT exports have only partially mitigated the current account shortfall, which reached $244 million in December and $1.2 billion in the first half of the year. Private sector borrowing surged by Rs578 billion, while the Federal Board of Revenue faced a shortfall of Rs329 billion. Foreign exchange reserves have crossed $16 billion, with hopes of reaching $18 billion by June 2026, even as around $6 billion has already been spent on external obligations. The global easing of interest rates has reduced the volume of external debt payments to $25.7 billion, $7 billion of which has been rolled over.
The State Bank expects inflation to hover between 5 and 7 per cent this year, though some months may see a spike above seven per cent. Imports are projected to rise by eight per cent, while exports may fall by six per cent. Although large-scale industries have shown growth above 10 per cent over the past eight months, and the agricultural outlook for wheat, maize, and cotton is positive, the broader economic picture remains fragile.
These figures arrive at a moment when the ruling coalition continues to insist that the economy has “taken off” and inflation has returned to levels not seen in six decades. Yet the evidence from the central bank—and corroborated by the Pakistan Bureau of Statistics—tells a different story. Exports are declining while imports surge, and the structural barriers that deter investment remain formidable. Energy costs are high, security conditions are uneven, and delays in the judicial system erode investor confidence.
Debt and interest obligations continue to strain public finances, compounded by ballooning government expenditure and the disproportionate privileges enjoyed by parliamentarians and civil servants. According to a United Nations report, the elite receive over $17.5 billion in annual perks, a figure that undermines an already fragile economy. Corruption remains pervasive: the IMF has identified over Rs5,300 billion lost to corruption in the past three years, while the finance minister has warned that graft alone diverts up to Rs1,000 billion annually from public institutions.
The central lesson is clear: economic stability cannot be conjured through statements and statistics alone. A sustainable recovery requires coherent, long-term industrial and trade policies to boost exports, competitive energy pricing, judicial reforms to restore investor confidence, stringent control over government expenditure, meaningful reduction of elite privileges, expansion and protection of the tax base, and credible anti-corruption measures. Until these reforms are implemented, claims of economic revival will remain largely symbolic, offering reassurance on paper rather than tangible improvement for the public.
In short, Pakistan’s economic narrative is at a crossroads. Growth may show promise, and monetary policy may offer temporary relief, but without structural reform, the gap between official rhetoric and the lived reality of ordinary citizens will continue to widen. For the public, only concrete action, not political spin, can translate economic data into improved livelihoods.
(The writer is a former government officer and a senior analyst on national and international affairs, can be reached at inam@metro-morning.com)
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