Inflation Falls, Reserves Rise After Tough Decisions
Prime Minister Shehbaz Sharif has declared that Pakistan has stepped out of the phase of “economic firefighting”, saying two years of painful but necessary reforms have stabilised key indicators. Speaking at the launch of the government’s Economic Governance Reforms, he said the economy inherited in early 2024 was in deep crisis, with inflation close to 30 percent, foreign exchange reserves at critically low levels, weakened state institutions and limited external support.
He said the government had no choice but to take politically difficult decisions, including the withdrawal of unsustainable subsidies, stricter fiscal discipline, stronger public financial management and the start of long-delayed privatisation. These, he stressed, were not cosmetic steps but structural reforms meant to reset the economic baseline.
According to the prime minister, inflation has since dropped from 29.2 percent to around 4.5 percent, while foreign exchange reserves have risen from about 9.2 billion dollars to more than 21 billion dollars. The current account position has also improved, moving from a 3.3 billion dollar deficit to a 1.9 billion dollar surplus, and Pakistan has shifted from a primary deficit to a primary surplus.
From Crisis Management to Economic Governance Reforms
PM Shehbaz said the new phase is about moving from emergency stabilisation to longer-term institution building. The Economic Governance Reforms package, he explained, is designed to embed stability into state systems so that future governments are not forced into repeated firefighting every few years.
The reform programme consists of 142 actions, including 59 priority reforms and 83 supporting measures to be implemented by 58 institutions. Key focus areas include taxation, energy, privatisation, pensions, tariff rationalisation, regulatory simplification, rightsizing of the federal government and digital governance. The prime minister described it as a home-grown agenda aimed at creating a more predictable and investment-friendly policy environment.
Tax Reforms, Digitisation and Privatisation at the Core
On the fiscal side, the prime minister said revenue reforms are beginning to address long-standing distortions in the tax system. The tax-to-GDP ratio, which stood near 8 percent, has risen to above 10 percent, with more than one million new taxpayers added to the formal system. Overall tax collection grew by 26 percent in 2025, supported by large-scale digitisation.
He highlighted the government’s e-procurement platform, which now covers more than 1,000 federal agencies and over half a million contracts. The system is integrated with the Federal Board of Revenue, NADRA and the Securities and Exchange Commission of Pakistan to improve transparency and reduce leakages.
Privatisation has also been placed at the centre of the reform drive. The prime minister pointed to the sale of Pakistan International Airlines and First Women Bank as a clear break from decades of hesitation. Further reforms in state-owned enterprises are in the pipeline, with the aim of reducing fiscal losses and freeing up space for development and social spending.
Improved Growth, Lower Debt and a Shift in Monetary Policy
Finance Minister Muhammad Aurangzeb, speaking at the event, said that GDP growth reached 3.1 percent in FY25 and accelerated to 3.71 percent in the first quarter of FY26. He noted that inflation remained close to 5 percent in the first five months of FY26 despite climate-related shocks, giving space for a cautious easing of monetary policy.
He said public debt has declined to about 70 percent of GDP from 75 percent in FY23, helped in part by early debt repayments that saved roughly 3.5 trillion rupees in interest costs. The State Bank’s policy rate has been brought down to 10.5 percent from a peak of 22 percent in June 2024, signalling a shift from pure stabilisation toward supporting investment and growth.
According to the finance minister, Pakistan’s stabilisation efforts and reform momentum have been recognised by international credit rating agencies and development partners, which he said is helping restore investor confidence and access to external financing.
Next Challenge: Turning Stability into Broad-Based Growth
While the government has framed the Economic Governance Reforms as the end of firefighting, officials acknowledge that significant risks remain. Global uncertainty, climate pressures, and the need for continued fiscal discipline could still test the durability of the current gains.
PM Shehbaz said the next phase of policy will focus on accelerating growth, expanding exports and making Pakistan a far easier place to do business. This includes improving the regulatory environment, giving clarity to investors and pushing for higher productivity in sectors such as industry, agriculture and services.
- He emphasised that the people of Pakistan have already paid a high price for past instability and that the country cannot afford a return to old habits. The success of the reform plan, he added, will depend on strict implementation by all 58 institutions involved and on sustained political commitment to an economic path that favours long-term stability over short-term populism.
