Boom-bust cycle: SBP advises not to repeat past mistakes of accelerating demand, rapid economic growth

Business Recorder

07-07-2025

Pakistan will not 'repeat past mistakes such as accelerating demand and economic growth too rapidly', State Bank of Pakistan (SBP) Governor Jameel Ahmad said on Monday.
Speaking at the launch of the Women Entrepreneurs Finance Code by SBP, he said he was confident that the ongoing transition from hard-earned economic stabilization to growth would remain sustainable — unlike the recurrent boom-bust cycles witnessed in recent years.
He said the strong build-up in the country's foreign exchange reserves (held by SBP) is one of the many reasons behind his confidence for achieving long-lasting economic growth this time, as SBP's FX reserves have surged five times to $14.5 billion at present compared to less than $3 billion at the start of the calendar year 2023.
'This reserve build-up is driven by our FX purchases (from local currency markets including inter-bank market) rather than external debt raised by the commune as was the case between 2015 and 2022,' he said.
He added the rate of inflation has come down sharply, the current account has turned into a surplus, and SBP FX reserves are rising. 'The exchange rate is relatively stable and economic growth is also picking up gradually… most importantly, the economic outlook at present is far more promising than a couple of years ago,' he added.
As a result of tough but necessary macroeconomic stabilization measures implemented by the SBP and the government, 'we are now out of the difficult period,' he said.
'Economic growth showing signs of recovery'
'The period of stabilization has often been followed by a boom-bust cycle. To avoid repeating these patterns (this time), it is crucial not to repeat past mistakes such as accelerating demand and economic growth too rapidly, especially in inward-looking sectors,' Ahmad said.
'Economic growth is showing signs of gradual, consistent and sustainable recovery. Unlike in the previous episodes of boom-bust cycles, the current policy mix remains conducive to a lasting increase in economic activity rather than a short-sighted, fragile and populist sugar rush…With the focus now increasingly shifting towards structural reforms we strongly believe that this time is indeed different for Pakistan's economy,' he added.
Ahmad elaborated that the confidence behind targeting to achieve a sustainable economic growth this time is strongly supported by 9-year low headline inflation reading at average 4.5% in fiscal year 2024-25. 'We are increasingly confident that with prudent and coordinated mix of monetary and fiscal policies inflation will stabilize within its target range of 5% to 7%.'
He also said the FX market remains stable. 'The current account balance is projected to remain supportive, driven by robust remittances and resilient exports despite rapid growth in both the value and volume of imports in line with the ongoing economic recovery,' the SBP Governor said.
He maintained that the fiscal policy has proactively supported monetary tightening as reflected in the second consecutive primary surplus in fiscal year 2025. 'Both tax and non-tax revenues have shown sizable growth, while overall expenditures have remained relatively contained. The government of Pakistan is targeting a higher primary surplus for the fiscal year 2026.'
Lastly, but most importantly, the focus is now shifting towards reforms that address structural issues. 'Efforts to widen tax-based, privatized SOEs (state-owned entities) and liberalized trade will bring greater efficiency, enhance the role of the private sector and improve competition,' he said.
The State Bank of Pakistan launched the Women Entrepreneur Finance Code in partnership with the Asian Development Bank with a $500 million loan program to support women-led businesses.
Some 20 banks and financial institutions joined the initiative, which was also supported by the World Bank.