In February 2024, the current government took charge amidst an unprecedented economic crisis. On the macroeconomic front, several critical challenges loomed, including historic inflation at 38 per cent, dwindling foreign exchange reserves, stagnant foreign trade, soaring debt servicing, an inefficient power sector, and declining GDP growth. The government made difficult and unpopular decisions, implementing tough policies with resolve, ultimately steering the economy away from a dire situation.
These policies included a high interest rate and an increased tax burden, primarily borne by those already within the tax net. While not a permanent solution, the result was significant: the persistent current account deficit — which resurfaces every few years to drain foreign exchange reserves — disappeared, turning into a surplus. Additionally, the fiscal deficit was brought under manageable control.
The current account and fiscal deficits were the primary reasons behind the depletion of the country’s foreign exchange reserves and the surge in inflation to historic highs. With both deficits now under control, the reserves have stabilised, and prices have plateaued.
The current account and fiscal deficits were the primary reasons behind the depletion of the country’s foreign exchange reserves and the surge in inflation to historic highs. With both deficits now under control, the reserves have stabilised, and prices have plateaued. While it would be premature to declare the economic crisis over, one thing is clear: confidence and economic stability have been achieved.
This stability has helped reduce inflation and supported rebuilding foreign exchange reserves. By the start of FY 2024-25, the positive impact of these measures became evident, with nearly every macroeconomic indicator showing resilient improvement. Furthermore, in September 2024, the successful implementation of the $7 billion IMF program restored market confidence and garnered support from global financial lenders. A brief overview of the economic performance is elaborated below:
Inflation
Inflation in Pakistan has long been a significant and persistent economic challenge. Today, the inflation rate has dropped to a remarkable 4.9 per cent, the lowest in 70 months — an achievement once considered unimaginable.
Prime Minister Shehbaz Sharif commended his economic team’s performance, stating that the country’s economy was firmly on the path to progress. He attributed this turnaround to a stringent clampdown on smuggling, a sharp decline in inflation, and doubled revenue collection, which have collectively helped stabilise the eroding economy.
The Prime Minister noted that sentiment on the ground was positive as inflation declined. He emphasised the need to focus on sustained growth, particularly improving the GDP ratio, boosting exports, strengthening industry, increasing employment opportunities, and developing special economic zones (SEZs).
Foreign trade
During the first five months of FY25, the trade deficit narrowed by 7.39% year-on-year (YoY), declining to $8.651 billion compared to $9.341 billion during the same period in FY24. Exports saw a growth of 12.57 per cent, rising to $13.691 billion in July-November FY25, up from $12.162 billion in the corresponding period of FY24. Meanwhile, imports remained within controlled limits, registering a modest increase of 3.90 per cent to $22.342 billion, compared to $21.503 billion in the same time frame last year.
Balance of payment
Pakistan’s current account posted a notable surplus of $218 million in the first four months of the current fiscal year (4MFY25), in contrast to a massive deficit of $1.528 billion in the same period of the previous fiscal year.
The surplus is expected to help the Pakistani currency remain stable against the US dollar and other global currencies, bolster the foreign exchange reserves, and boost the country’s capacity to smoothly pay for the rising imports and repay the maturing foreign debt.
Foreign reserves
Pakistan’s foreign exchange reserves reached a 31-month high in December 2024, with total liquid reserves standing at $16.62 billion.
This boost in reserves, coupled with improved economic stability, prompted global credit rating agencies, including Moody’s and Fitch, to upgrade Pakistan’s rating by one notch within the ‘C’ category during the current fiscal year.
Budget surplus
Pakistan achieved a budget surplus during the first quarter of FY 2024-25 (July-September), breaking a 24-year cycle of consecutive fiscal deficits since FY 2001. The budget surplus for this period stood at an impressive Rs1,896.01 billion.
Additionally, the Government of Pakistan successfully achieved a cumulative provincial surplus of Rs360 billion, surpassing the IMF-agreed target of Rs342 billion for Q1 of FY 2024-25.
The country’s primary surplus, which excludes interest payments from the fiscal balance, also reached a historic peak of over Rs3 trillion — equivalent to 2.4 per cent of GDP. This figure is nearly double the full-year target of 1 per cent of GDP, or approximately Rs1.24 trillion.
Remittances
During the first five months of FY25, remittances increased by a remarkable 33.6 per cent year-on-year, rising to $14.8 billion compared to $11.1 billion in the corresponding period of FY24. The inflow of workers’ remittances is projected to reach an all-time high of $35 billion by the end of FY 2024-25.
Home remittances play a crucial role in supporting the country’s external account, stimulating economic activity, and supplementing the disposable incomes of remittance-dependent households. This significant boost in remittances is the result of efforts by the State Bank of Pakistan and the Federal Government to revamp the incentive structure for banks and exchange companies (ECs). Under this revamped system, both the banks and the ECs benefit from two types of incentives: fixed component incentives and variable component incentives.
Pakistan Stock Exchange
The Pakistan Stock Exchange (PSX) reached a significant milestone in December 2024 as the KSE-100 Index surpassed the 110,000-point mark. This outstanding performance reflects positive investor sentiment and a robust market trend.
Like life itself, economic progress is a journey of resilience and reinvention. Just as the darkest nights give way to dawn, nations too must endure trials to emerge stronger.
The writer is a corporate financial specialist.
