KARACHI: The State Bank of Pakistan (SBP) emphasized on Thursday that a continued perceptible progress on structural reforms is crucial to a sustained economic growth, building of external buffers and reducing external financing risks.
According to Financial Stability Review (FSR)- an annual flagship publication of the State Bank of Pakistan (SBP) going forward, prospects of financial stability in near term remain encouraging. However, the heightened uncertainty amid the recent wave of protectionist measures and its associated implications on global economic growth and financial conditions may also pose challenges for domestic economy, the report said.
Nonetheless, results of the latest stress testing assessment of the banking sector reveals that the sector is expected to remain resilient to various severe hypothetical but plausible shocks over the projected horizon of three years and is expected to maintain its compliance with minimum capital adequacy requirements. SBP, on its part, will continue to ensure financial system stability by remaining vigilant to emerging risks and proactively strengthening its regulatory and supervisory regime.
Macroeconomic stability achieved: SBP governor
The Review highlights that national CPI dropped to 7.2 percent in March 2025 from 28.7 percent a year earlier, prompting the Monetary Policy Committee to cut the policy rate by 1,000 basis points to 12.0 percent in January 2025. Lower policy rate, combined with improved external account position and stable exchange rate, is likely to further induce demand for private sector credit and enhance repayment capacity of the banks’ borrowers.
Besides, the continuity of IMF program is to further support macroeconomic stability. Encouragingly, first review of IMF’s EFF in March 2025 terms the program implementation as strong. Amid such developments, SBP FX reserves have improved by 41.4 percent to reach $ 11.2 billion in February 2025, keeping rupee-dollar parity in check and further contributing to easing of financial conditions.
Moreover, fiscal consolidation remains on track supporting a positive economic outlook. The Business Confidence Index has stayed positive since August 2024, while the SBP’s latest Systemic Risk Survey suggests improving market sentiment on macroeconomic risks over the next six month
According to FSR, Cybersecurity has emerged as a key risk to financial stability. In response, SBP is enhancing cyber resilience through various measures, including the establishment of a dedicated Cyber Risk Management Department to perform on-site and off-site supervision of cyber security risks of the regulated entities (REs) with greater focus. Under its Vision 2023–28, SBP is also prioritizing technological innovation, cybersecurity, and data privacy.
The global environment presents a mixed picture for domestic economy. Global commodity prices are trending down and major central banks in advanced economies, excluding Federal Reserve, continue to lower key interest rates. Nonetheless, change in trade policy by the US may have implications for FED’s monetary policy as well as global financial conditions.
Copyright Business Recorder, 2025
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