SBP sees stronger growth outlook, inflation within target

February 09, 2026 (MLN):Pakistan’s macroeconomic outlook has improved markedly, with inflation expected to remain within the State Bank of Pakistan’s (SBP) target range and economic growth gaining momentum over the next two fiscal years, according to SBP’s latest bi-annual monetary policy report. 

Supported by a prudent monetary policy stance and continued fiscal consolidation, inflation is projected to stay within 5–7% for most of FY26 and FY27, while real GDP growth is now expected in the range of 3.75–4.75% in FY26, with further improvement anticipated in FY27.

The central bank noted that the external sector is also stabilizing, with the current account deficit projected to remain contained at 0–1% of GDP in FY26.

A relatively higher trade deficit is expected to be partially offset by strong workers’ remittances and planned official inflows, according to a press release by SBP's External Communications Department.

As a result, SBP’s foreign exchange reserves are projected to rise to $18 billion by June 2026 and increase further in FY27, approaching nearly three months of import cover.

Economic activity has strengthened amid ongoing macroeconomic stabilization, easing financial conditions, and the recent reduction in the Cash Reserve Requirement to 5%.

These developments have contributed to an improved growth outlook and greater confidence in the sustainability of the recovery.

However, the assessment also highlighted emerging risks to the outlook. While the risk of widespread disruption from recent floods has diminished, uncertainty stemming from global tariff-related developments and volatility in international commodity prices persists. 

Domestically, below-target revenue collection and potential adverse climate events remain key vulnerabilities for inflation, the external account, and growth prospects.

In this context, SBP emphasized the need to accelerate structural reforms to enhance economic resilience, improve productivity, and reduce losses in state-owned enterprises. 

The assessment also discussed key monetary policy themes, including transmission lags following earlier policy rate cuts, alternative indicators such as heat maps to gauge economic activity, and the growing role of surveys and structured engagement with private-sector stakeholders in informing monetary policy decisions.

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