KARACHI – (Web Desk) – The State Bank of Pakistan (SBP) has projected economic growth of 3.5% to 4.5% in fiscal year 2027, but warned that geopolitical tensions, rising global energy prices, climate-related disasters and delays in structural reforms could undermine the country’s economic recovery.
In its Half-Yearly Monetary Policy Report for August 2026, the central bank said Pakistan’s economic performance during FY2026 remained broadly in line with expectations despite external shocks linked to the conflict in the Middle East.
The SBP said the geopolitical situation had pushed up energy, freight and insurance costs, creating additional challenges for Pakistan and other import-dependent economies.
Despite these pressures, the central bank said a cautious monetary policy helped contain the second-round effects of higher energy prices and kept inflation expectations under control.
Inflation expected to remain near target
According to the SBP, the government’s timely adjustment of domestic prices in response to higher international prices, along with fiscal discipline and targeted subsidies, helped keep aggregate demand at moderate levels.
The central bank expects inflation to stabilise near the upper end of its target range by the end of FY2027.
However, renewed increases in international energy and commodity prices could create additional inflationary pressures and complicate efforts to maintain macroeconomic stability.
The SBP stressed that keeping inflation expectations anchored would remain important as Pakistan attempts to achieve stronger economic growth without returning to previous cycles of macroeconomic instability.
Current account deficit seen at up to 1% of GDP
The central bank has projected Pakistan’s current account deficit at between zero and 1% of GDP during FY2027.
A relatively contained external deficit could help ease pressure on the country’s foreign exchange position and support economic stability.
The SBP has also set a target of increasing its foreign exchange reserves to $20.20 billion by December 2026.
It expects the central bank’s reserves to rise further by the end of FY2027, assuming continued support from external financing, exports, remittances and other foreign exchange inflows.
Middle East tensions remain major threat
Despite the growth projection, the SBP identified the evolving geopolitical situation in the Middle East as one of the biggest risks to Pakistan’s economic outlook.
The central bank warned that global energy and commodity prices could rise beyond current expectations, potentially affecting domestic economic activity.
Pakistan remains vulnerable to international oil price movements because of its dependence on imported energy. A prolonged increase in crude prices could raise the country’s import bill, widen external pressures and contribute to higher domestic inflation.
Higher freight and insurance costs could further increase the cost of imported goods and put additional pressure on businesses and consumers.
Floods could worsen economic pressures
Climate-related risks also feature prominently in the SBP’s assessment.
The central bank identified floods and other environmental shocks as potential threats to economic activity, particularly through their impact on agriculture, infrastructure and supply chains.
Severe flooding could also increase government expenditure on relief and reconstruction while causing agricultural losses and putting additional pressure on food prices.
For Pakistan, where agriculture remains an important component of economic activity and employment, climate shocks could have significant implications for growth and inflation.
Delayed reforms may hurt exports and productivity
The SBP also warned that delays in implementing structural reforms could weaken Pakistan’s exports and domestic productivity.
The central bank stressed that maintaining macroeconomic stability alone would not be sufficient to deliver sustainable and higher economic growth.
Improvements in productivity, investment, export competitiveness and the overall business environment will be necessary to strengthen Pakistan’s economic foundation.
The latest outlook therefore presents a mixed picture. While the SBP sees economic growth reaching 4.5% in FY2027, the recovery remains exposed to external and domestic risks.
Higher global energy prices, geopolitical instability, climate-related disasters and delays in structural reforms could all undermine the growth outlook.
The government’s ability to maintain fiscal discipline, implement structural reforms and protect macroeconomic stability will be crucial in determining whether Pakistan can turn the projected recovery into sustained and broad-based economic growth.
