The State Bank of Pakistan (SBP) recently highlighted key structural challenges that continue to threaten Pakistan’s macroeconomic stability in its annual report on the state of the economy. These obstacles include declining investments, a difficult business environment, insufficient research and development, and low productivity, which, together with climate change risks, are hampering the country’s economic growth potential.
Persistent Energy Sector Inefficiencies
A major concern raised by the SBP is the ongoing inefficiency in the energy sector, which has led to the accumulation of circular debt. Despite the government’s efforts to address these issues through significant price adjustments, the central bank emphasized the need for broader, more comprehensive reforms. According to the report, sector-specific policy and regulatory changes are essential for long-term improvements.
State-Owned Enterprises and Fiscal Constraints
The SBP also pointed out the inefficiency of state-owned enterprises (SOEs), which continue to drain fiscal resources already limited by a low tax-to-GDP ratio. The report urged urgent reforms in the management and operation of SOEs to alleviate the financial strain on the government.
Positive Outlook with IMF Support
On the positive side, the SBP acknowledged improved macroeconomic indicators, partly due to the International Monetary Fund (IMF) Extended Fund Facility (EFF) that was approved in September. The IMF program is expected to strengthen Pakistan’s external accounts, boost its sovereign credit rating, and enhance investor confidence.
Additionally, the global economic landscape appears favorable for Pakistan, with inflation rates in advanced economies declining and global economic growth remaining steady. The SBP forecasted that average inflation for FY25 would likely fall below the earlier projection of 11.5 to 13.5 percent.
Government’s Commitment to Reforms
In a related development, Finance Minister Muhammad Aurangzeb reaffirmed the government’s dedication to implementing comprehensive reforms in taxation, the energy sector, and SOEs during a meeting with US Ambassador Donald Blome. The minister reiterated the goal of increasing Pakistan’s tax-to-GDP ratio to 13.5% within the next three years by addressing tax evasion and broadening the tax base.
Ambassador Blome appreciated the government’s efforts to stabilize the economy and pledged the US’s ongoing support in technical and development initiatives. He also emphasized the importance of promoting high-quality US investments in Pakistan.
