SBP sees FY27 growth gathering pace, fiscal discipline still key

July 29, 2026 (MLN): The State Bank of Pakistan (SBP) has highlighted that its current monetary policy stance remains appropriate to guide inflation towards the 5-7% medium-term target range, even as headline inflation averaged slightly above the band in FY26 due to the impact of the Middle East conflict on global oil prices.

According to a post-Monetary Policy Committee (MPC) analyst briefing slide deck released in July 2026, headline inflation has been easing since its recent peak but remained elevated, while core inflation stayed range-bound.

The central bank noted that second-round effects of the ongoing geopolitical shock had remained relatively contained through June, with month-on-month CPI readings showing food and energy volatility but limited broader pass-through.

The briefing showed inflation expectations moderated further in July. Business and consumer inflation expectations surveys also softened compared to earlier months.

On growth, the SBP said the economy continued to improve gradually and sustainably despite significant shocks, with real GDP growth for FY26 (provisional) coming in higher than FY25, and the central bank projecting FY27 growth in the range of 3.5-4.5%.

Services and industry contributed the bulk of the expansion in 9M-FY26, a shift from the agriculture-led growth seen in prior years.

Large-scale manufacturing (LSM) contracted in May, which the SBP attributed to the Middle East conflict, higher global energy prices, and domestic austerity measures, though high-frequency indicators pointed to a pickup in activity in June after the prior month's slowdown.

The Purchasing Managers' Index (PMI) also improved in June and July, while capacity utilisation in the manufacturing sector held close to its long-term average.

Private sector credit growth showed a broad-based recovery in June, in line with improving economic activity, led by both working capital and fixed investment loans to businesses, alongside a pickup in consumer financing across auto, credit card, and personal loan segments.

On external accounts, the current account remained broadly balanced in FY26, recording a deficit of just $0.14bn (-0.03% of GDP), against a surplus of $1.8bn in FY25.

SBP's liquid FX reserves stood at $17.3bn as of July 17, 2026, exceeding the central bank's end-year target, while forward liabilities recorded a significant decline over the year.

On the fiscal side, the SBP said sustained fiscal discipline remains essential to preserve hard-earned macroeconomic stability, with the overall fiscal balance projected to narrow to -3.6% of GDP in FY27, and the primary balance projected at a surplus of 2.0% of GDP.

The briefing also highlighted that S&P's upgrade of Pakistan's sovereign credit rating from B- to B on July 22, 2026 reflects improved macroeconomic stability supported by the prudent policy mix.

Sovereign bond yields and the 5-year CDS spread have also improved sharply from their 2022 peaks, with the CDS spread falling to 378 basis points as of July 27, 2026, from 7,851 basis points in December 2022.

Summing up, the MPC said it remains firmly committed to achieving and maintaining price stability despite heightened risks from persistent shocks, while emphasising that continued fiscal consolidation and structural reforms remain critical to build buffers and sustain growth.

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