Pakistan's financial system shows resilience in FY25: SBP Governor

October 17, 2025 (MLN): The country's macroeconomic landscape has witnessed a dramatic transformation during fiscal year 2025, with inflation rates dropping sharply and the financial system demonstrating exceptional resilience, according to the latest Governor's Annual Report released by the central bank.

The disinflationary trend that emerged last year has accelerated significantly, with average National Consumer Price Index inflation plummeting to 4.5% in FY25, down from 23.4% in FY24 and 29.2% in FY23. This represents one of the sharpest declines in recent economic history.

The decline has been broad-based across multiple sectors. Food inflation contributed most substantially to this drop, driven by improved availability of food commodities in domestic markets and lower international food prices. Energy inflation also decreased considerably, benefiting from downward adjustments in administered energy tariffs amid softer global oil prices.

Responding to the improved inflation outlook, the Monetary Policy Committee reduced the policy rate by a cumulative 1,100 basis points between June 2024 and June 2025.

However, authorities slowed the pace of monetary easing in the second half of the fiscal year due to lingering uncertainties, including sticky core inflation, evolving global trade tariffs, rising geopolitical tensions, and volatility in energy prices.

This measured approach facilitated notable expansion in private sector credit and supported gradual recovery in economic activity, particularly during the latter part of the fiscal year.

Fiscal consolidation played a crucial role in bringing down inflation. The fiscal deficit narrowed to a multi-year low of 5.4 percent of GDP, while the primary surplus more than doubled to 2.4%. This fiscal discipline complemented monetary policy efforts to achieve price stability.

In a historic achievement, the current account balance posted a surplus for the first time in over fourteen years. Combined with increased financial inflows following the IMF's Extended Fund Facility programme, this enabled the central bank to conduct significant foreign exchange purchases from the interbank market, strengthening reserves and enhancing market stability.

The financial system remained resilient throughout FY25, with the banking sector exhibiting stability across all major indicators. The adoption of IFRS-9 standards since January 2024 strengthened banks' risk management frameworks and enhanced their loss-absorption capacity. Banking sector assets expanded to nearly 52.4 percent of GDP, up from 49.1 percent in FY24.

Significant progress was made in advancing digital payments infrastructure. Key developments included the establishment of Raast Payments Pakistan (Pvt.) Ltd., the introduce of the enhanced PRISM+ settlement system with integrated Central Securities Depository features, and the introduction of a Regulatory Sandbox Framework for payment innovation.

Digital payment acceptance solutions were implemented nationwide, alongside further digitization of government payments, as part of ongoing efforts to promote a cashless economy.

The National Financial Inclusion Strategy 2024-28 was introduced with ambitious targets to raise financial inclusion to 75% and reduce the gender gap to 25 percent by 2028.

Initiatives such as the National Financial Education Roadmap 2025-29 and continued implementation of the Banking on Equality policy are driving progress.

While recognizing recent reforms in taxation, customs tariffs, agricultural commodity market deregulation, and gradual withdrawal of untargeted subsidies, authorities emphasize the need for steadfast implementation of structural and governance reforms to sustain price and financial stability.

The central bank has assured it remains vigilant in monitoring evolving risks, including challenges from global tariff policy shifts in 2025 and domestic flood impacts, factoring these into policy decisions to safeguard economic stability essential for sustainable growth.

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