Finance: Long road to economic recovery

Inflation has apparently bottomed out, but Pakistan’s journey to economic recovery may become even harder. The country’s national average inflation hit a decade-low in February 2025, with annual CPI inflation dropping to 1.5 per cent, down from 23.1pc a year earlier, according to the Pakistan Bureau of Statistics (PBS). This sharp decline signals the impact of economic stabilisation efforts, including a $7 billion International Monetary Fund (IMF)-backed reform package and aggressive monetary easing. Since June 2024, the State Bank of Pakistan (SBP) has cut the policy rate by 10 percentage points, bringing it to 12pc in January 2024. When we talk about the IMF-prescribed stabilisation efforts, we must keep in mind they have contained aggregate domestic demand growth: people’s real income adjusted for inflation either remained static or fell, and industrial production and commercial activities became so costly due to energy price hikes and new or increased taxes that industrial output squeezed, and commercial activities shrank.