KARACHI: The State Bank of Pakistan (SBP) has revised down its projection for economic activities by almost one percentage point in the wake of ongoing floods, reassessing the country’s gross domestic product (GDP) growth to be around 3.25% in current fiscal year 2025-26 (FY26).
Earlier in July, the central bank had estimated the growth to be in the range of 3.25%-4.25% for FY26.
“[The] real GDP growth for FY26 is assessed to remain close to the lower end of the earlier projected range of 3.25% to 4.25%,” the central bank said in its latest monetary policy statement (MPS) released on Monday.
The SBP maintained its key policy rate at 11% for the next six weeks on Monday, maintaining status quo for the third consecutive time since June 2025. Earlier, it cut the rate cumulatively by 11% in the prior 11 months, halving the rate to 11% in May from peak of 22% in June 2024.
The bank said the recent floods have moderated the overall growth outlook for FY26. Based on the currently available information, including satellite imagery, Kharif crops have incurred losses. These losses, together with flood related supply chain disruptions, “may also dampen activity in the manufacturing and services sectors in the near term,” the statement reads.
Floods 2025: Pakistan faces $1.4bn economic loss, agriculture hit hardest
Major Kharif (summer) crops include cotton, sugarcane, rice, maize (corn), millet, and various pulses like moong and mash, it was learnt.
At the same time, SBP said, the prospects for Rabi crops (mainly the staple crop of wheat) have somewhat improved in the wake of a likely increase in post-flood yields. Such developments pushed the SBP to revise down GDP growth for FY26.
It maintained that economic activity – as captured by high frequency economic indicators, including large-scale manufacturing (LSM) – gained further momentum.
However, the near-term macroeconomic outlook has deteriorated slightly in the wake of the ongoing floods. This temporary yet significant flood-induced supply shock, particularly to the crop sector, may push up headline inflation and the current account deficit from earlier expectation (of 5-7% and 0-1%, respectively) in FY26. Meanwhile, economic growth is projected to moderate as compared to the previous assessment, according to the central bank statement.
The SBP said the Federal Board of Revenue’s (FBR) tax collection fell slightly short of target during July-August 2025, though it grew significantly on year-on-year basis.
The announcement of revised import tariffs by the US has led to some reduction in global trade uncertainty, it added.
The SBP’s foreign exchange (FX) reserves remained stable, despite net debt repayments and a current account deficit, maintaining around $14.3 billion as of September 5.
Inflation expectations of both consumers and businesses inched up in September in a recent SBP-IBA sentiment surveys.
The external sector outlook remains susceptible to evolving domestic and global conditions. In particular, flood-related damage to crops is assessed to further widen the trade deficit, though this is likely to be partly offset by Pakistan’s improved market access to the US.
Moreover, remittances have remained resilient and may pick up further as experienced during previous episodes of natural disasters. On balance, the current account deficit is likely to remain in the earlier projected range of 0 to 1% of GDP in FY26.
With the expected realisation of planned official inflows, SBP’s FX reserves are projected to reach around $15.5 billion by December 2025.
