KARACHI: The central bank on Monday said Pakistan’s economic growth is expected to recover in fiscal year 2027 but warned that risks such as Middle East tensions, global energy price volatility, climate change and delays in structural reforms could impact this outlook.
In its biannual Monetary Policy Report (MPR), the State Bank of Pakistan (SBP) said that inflation is projected to ease and stabilise near the upper bound of the target range towards the end of FY27.
Economic growth is expected to pick up and remain in the range of 3.5-4.5 percent, supported by budgetary incentives and continued macroeconomic stability.In the external account, the current account deficit is projected to remain within 0-1 per cent of GDP, the SBP’s report said. This will support continued foreign exchange purchases by the SBP and help achieve the FX reserves target of $20.2 billion by December 2026. The SBP’s FX reserves are projected to rise further by end-FY27.
The report reviews the macroeconomic developments and outlook that underpinned the MPC’s decisions since the January 2026 MPC meeting.“The macroeconomic outlook remains susceptible to multiple risks,” the report said.
“In particular, the evolving geopolitical developments in the Middle East, including a more prolonged and wider conflict in the region, can push up global energy and other commodity prices beyond the levels assumed in the July 2026 MPC meeting,” it added.
The report highlighted that these developments may have adverse implications for the outlook for inflation, economic activity and the external sector of many regional economies, including Pakistan. At the same time, climate-related risks, specifically the expected worsening in El Nino conditions and floods, could adversely affect agricultural production, food prices, economic activity and the current account deficit, while potentially necessitating additional fiscal spending. Lastly, delays in the implementation of structural reforms could further weaken exports, slow productivity gains, and reduce the economy’s capacity to sustain higher growth without generating excessive inflationary and external account pressures.