KARACHI: State Bank of Pakistan (SBP) Governor Jameel Ahmed said on Wednesday that the country’s economic outlook remains highly optimistic, with GDP growth projected between 3.5-4.5 percent for FY26, rising home remittances and foreign exchange reserves, and manageable external debt repayments of $26 billion during the current fiscal year.
While addressing a press conference on Wednesday at SBP head office after the Monetary Policy Committee (MPC) meeting, Governor SBP shared the economic outlook for FY26, highlighting modest growth, inflation risks, and efforts toward stabilizing external accounts.
He stressed the need for sustainable and export-led growth, saying: “There is no doubt that Pakistan needs to achieve higher growth rates. However, a robust export growth is vital for improving the external account and ensuring long-term stability.”
He said that high-frequency economic indicators are depicting a gradual economic recovery and reflected notable growth in automobile sales, fertilizer offtake, credit to private sector, imports of intermediate goods and machinery, and purchasing manager’s index in recent months. LSM showed YoY increase in both April and May after five months of contraction and these trends indicate the improving outlook for the manufacturing sector.
Jameel said as per provisional estimates Pakistan’s GDP growth for FY25 was 2.7 percent, primarily due to the low performance of the agriculture sector, which grew by only 0.6 percent. However, barring flood-related risks, the agriculture sector is also expected to recover in FY26. In particular, the outlook for major crops has somewhat improved from earlier expectations in the wake of better water availability due to recent rainfalls. Improving prospects for commodity-producing sectors will have positive spillover for the services sector as well, he added.
“Supported by easing financial conditions, positive business sentiments and a gradually strengthening macroeconomic environment, real GDP growth is projected to rise to 3.25-4.25 percent this fiscal year from 2.7 percent in FY25,” he mentioned.
Going forward, workers’ remittances are projected to grow at a slower pace amidst high base effect and recent rationalization of home remittances incentive schemes. Inflows of home remittances expected to remain strong and surpass $40 billion in FY26 as against $38 billion in FY25.
The trade deficit is expected to widen due to increased import demand, in line with the improving domestic economic activity, slowdown in global demand and unfavorable export prices, particularly of rice. As a result, the current account deficit is projected in the range of 0 to 1 percent of GDP in FY26 as against a $2.2 billion surplus in FY25, Governor SBP informed.
On the financing side, inflows are likely to improve, partly due to higher expected private flows following the recent upgrade in the country’s credit rating. Based on this assessment, the SBP’s FX reserves are projected to rise to $15.5 billion by end-December 2025 and $17.5 billion in June 2026. “Any amount raised through Eurobonds or Sukuks from the international market will be an addition to this $17.5 billion target,” he said.
He informed that external debt repayments are estimated $25.9 billion for FY26 including principal of $22 billion and interest payment of $4 billion. “Pakistan’s external debt obligations remain manageable, with $25.9 billion in repayments due in FY26, compared to $26.3 billion successfully settled in FY25,” he said.
Outlining the debt servicing strategy, he explained that out of the $25.9 billion due in the current fiscal year, $16 billion is expected to be rolled over, while $10 billion will be repaid, including $6 billion principal and $4 billion interest components. In addition, Pakistan has two bond maturities worth $1.8 billion this year as a part of external debt servicing.
Governor SBP, clarified that the rise in foreign exchange reserves is not being driven by external borrowing, signaling improved economic fundamentals. Pakistan’s current foreign exchange reserves stand at $14.5 billion, which now exceed the country’s net annual external debt obligations of $10 billion in this fiscal year, a reversal from previous years when reserves were lower than debt repayments.
On the domestic front, Jameel Ahmed said the policy rate was slashed from 22 percent to 11 percent, and the positive impact is gradually emerging, particularly in Large-Scale Manufacturing (LSM), which has begun to recover after a prolonged contraction.
Highlighting future plans, he announced that a pilot project for a Central Bank Digital Currency (CBDC) will be launched soon, aimed at strengthening the digital financial ecosystem. The SBP is also finalizing an agriculture financing scheme to boost credit access for farmers.
However, he said that inflation remains a concern and despite a target range of 5-7 percent, inflation may temporarily exceed the upper bound, driven by core inflationary pressures.
He noted that international credit rating agencies have acknowledged the improvement in Pakistan’s economic outlook by upgrading the country’s ratings. Additionally, Pakistan’s bonds are currently trading at a premium, reflecting growing investor confidence.
Replying to a question on issuance of new bonds in the world market, he said that Pakistan is closely monitoring global financial markets and plans to issue new Eurobonds, including Panda bonds, are under consideration.
On dollar availability for imports, the Governor SBP said that there is no restriction and banks are managing import payment. In addition, Notably, some $59 billion worth of imports were facilitated in FY25 from the reserves, up from $53 billion a year earlier. In addition, no foreign company’s dividend payments were pending as of June 30, 2025, reflecting improved facilitation for international investors.
Explaining the debt, Jameel Ahmed noted that Pakistan’s total public external debt has grown from $55 billion in 2015 to $100 billion in 2023, an average increase of around $6 billion annually. However, over the past three years, this figure has remained stable, reflecting greater fiscal discipline and improved debt management, he added.—RIZWAN BHATTI
