Pakistan is witnessing significant economic policy adjustments aimed at stabilizing the economy and fostering digital advancement. On January 27, 2025, the State Bank of Pakistan announced a notable cut to its benchmark interest rate, reducing it by 100 basis points to 12%. This decision, which aligns with expectations, is part of the central bank's broader strategy to manage inflation and stimulate growth.
Jameel Ahmad, the Governor of the State Bank, stated during the press conference following the announcement, "Considering these developments and the risks, the Committee viewed... to stabilize inflation in the target range of 5 – 7 percent." The move to lower the interest rate marks the latest step in what has been one of the most aggressive monetary policy shifts among central banks around the world, following substantial cuts totaling 1,000 basis points over the last six months, and down from a peak of 22% last June.
This economic strategy coincides with another major initiative: the Digital Economy Enhancement Project (DEEP), which aims to fortify Pakistan's digital economy and public services. On January 23, NADRA, the National Database and Registration Authority, hosted senior officials from the World Bank, including Vice President Martin Raiser and Country Director Najy Benhassine, to discuss the transformative potential of this initiative.
DEEP is closely aligned with the Digital Pakistan Policy, which was introduced back in 2018, and seeks to develop digital public infrastructure to improve accessibility of government services for citizens and businesses alike. The project's objectives include increasing financial inclusion, modernizing service delivery, and creating responsible data-sharing protocols.
NADRA plays a pivotal role under this initiative, having already achieved significant milestones like the integration of government services for seamless digital access by citizens. With the backing of the World Bank, the DEEP project sets the foundation for enhancing the government’s capacity for digitally enabled service delivery.
This collaborative effort not only promotes digital transformation but helps bridge the digital gap for many marginalized groups within Pakistan. The emphasis on inclusivity ensures equitable access for everyone, and conducting extensive stakeholder engagement is part of the project’s strategy.
While the current focus is on monetary adjustments and digital initiatives, the economic forecasts are noteworthy as well. The State Bank projects the full-year inflation rate for the fiscal year ending June 2025 to average between 5.5% and 7.5%. Signs of economic recovery are evident as consumer inflation fell to just 4.1% in December 2024, the lowest it has been for over six years.
Pakistan's economy is on track for growth as well, with the State Bank maintaining its GDP growth forecast at 2.5% to 3.5% for the fiscal year. This forecast is buoyed by enhanced foreign exchange reserves and the successful navigation of current account challenges, as evidenced by recent surpluses, including one of $0.6 billion recorded for December 2024.
The improved outlook on the current account balance is encouraging, especially with the impending review by the International Monetary Fund (IMF) on the $7 billion bailout program, which is also contributing to economic stability. The SBP governor indicated, "We have taken all actions required by the IMF from the central bank's side," showcasing the commitment to reforms and adherence to global financial standards.
Conclusively, as Pakistan adjusts its economic policies and embraces digital reform through DEEP, the nation's resilience and adaptability will be tested. The successful implementation of these strategies could serve as a catalyst for sustainable economic growth and digital integration, heralding a new era for the country's economy.