Pakistan pauses rate cuts, but likely not for long

A logo of the State Bank of Pakistan (SBP) is pictured on a reception desk at the head office in Karachi, Pakistan July 16, 2019. (REUTERS/File)
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Updated 12 March 2025
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Pakistan pauses rate cuts, but likely not for long

  • Experts say rate cuts alone cannot help meet growth targets, must be complemented by other measures
  • They believe Pakistan will wait for more clarity on the external front before gradually resuming rate cuts

KARACHI: With inflation cooling, Pakistan’s central bank hit pause on its multiple rounds of monetary easing that might have risked destabilising its currency or worsening the trade deficit.
Economists said the government should shift its focus to implementing economic reforms as interest rate cuts are not the elixir for growth, after the country’s central bank on Monday unexpectedly kept interest rates unchanged at 12 percent.
“The rate cuts alone may not meet growth targets,” said Vaqar Ahmed, economist and team lead with Oxford Policy Management. “They need to be complemented by prudent fiscal measures, such as tax reforms, energy sector viability and privatization of state-owned enterprises, to encourage private sector investment and prevent crowding out.”
The central bank’s rate hold snapped the largest easing cycle in the country’s history, disappointing some businesses burdened by high borrowing costs.
Economists had expected a cut on Monday, following a series of cuts totalling 1,000 basis points from a record high of 22 percent in June last year to revive the economy.
The economy, which grew 0.9 percent in the first quarter, is expected to gain momentum for the rest of the fiscal year, according to central bank chief Jameel Ahmad. Though first-quarter growth is well below its 2.5 percent-3.5 percent target for the year, the economy is not stalling.
However, Pakistan’s energy tariffs and the need for fiscal austerity measures under the International Monetary Fund program pose significant challenges to reviving demand.
Most economists expect the central bank to resume cuts soon, either later this fiscal year or at the start of the next one despite concerns around the trade deficit and impact on the currency. Pakistan’s trade deficit in January increased 18 percent year on year to $2.313 billion.
The central bank is “likely to wait for more clarity on the external front or until they are confident about achieving their medium-term inflation target of 5-7 percent,” said Saad Hanif, head of research at Ismail Iqbal Securities.
“Once that happens, I expect them to resume rate cuts, though at a slower pace.”
Ehsan Malik, CEO of Pakistan Business Council (PBC), warned that cutting rates on Monday would have necessitated a reversal soon, as monetary easing raises imports and trade deficits, which put pressure on the exchange rate, fueling inflation.
The cash-tight nation is navigating reforms under a $7 billion IMF program approved in September. The first instalment of the loan is under review, and if successful, Pakistan will receive a tranche of $1 billion.

REVIVE DEMAND AND INVESTMENTS

Inflation in Pakistan soared to around 40 percent in May 2023, driven by currency devaluation and subsidy removals for IMF approvals. But inflation dropped to a near-decade low of 1.5 percent in February, providing room for the central bank to boost growth.
Economists also warn of the risk of the government taking advantage of lower interest rates to increase borrowing for an expansionary budget. That would potentially destabilize the progress made under the IMF program and crowd out the private sector.
Pakistan’s central bank reported government borrowing has rebounded, while private sector credit jumped 9.4 percent in the second quarter of the current fiscal year.
However, purchasing power constraints were expected to remain a deterrent to revived borrowing and investment.
“Consumer purchasing power will take time to recover from the 75 percent+ price surge between 2021-2024,” said Mustafa Pasha, executive director at Lakson Investments.
Asfandyar Farrukh, chairman of the Chainstore Association of Pakistan, said stagnant incomes and increased taxes have reduced consumer spending power.
Retail volumes of renowned brands fell 10-15 percent over the past year and a half, with “razor-thin profit margins” due to frequent discounts, he said, adding that medium and large retailers were consolidating to cope, or were shutting down, leaving only a few “deep-pocketed players” investing in growth.

HIGH DEBT
Pakistan’s banking sector holds the world’s largest proportion of government securities relative to its total assets, according to an October 2024 IMF report.
The high domestic debt, mainly financed by banks, crowds out private sector credit, hindering policy transmission, reducing the impact of interest rate changes on the private sector, the IMF said in its report.
Reza Baqir, former chief of the State Bank of Pakistan, stressed the importance of foreign exchange stability for sustaining economic growth in Pakistan, given its history of current account issues after periods of high consumption and import-led growth.
Pakistan usually sets its budget for the year in June, with the fiscal new year running July 1 to June 30.
“Where there is fiscal dominance, there is relatively little that monetary policy will be able to do to prevent a current account deficit blow-out” if political or other developments lead to populist budgetary policies,” he warned.


Pakistan set to hold rates as Israel-Iran conflict overshadows growth push

Updated 13 June 2025
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Pakistan set to hold rates as Israel-Iran conflict overshadows growth push

  • Several brokerages initially expected a cut but revised their forecasts after Israeli strikes sparked fears of a broader conflict
  • Escalating hostilities triggered a sharp spike in oil prices, a worry for Pakistan given the broader impact on imported inflation

KARACHI: Pakistan’s central bank is expected to hold its policy rate on Monday, a Reuters poll showed, as many analysts shifted their previous view of a cut in the wake of Israel’s military strike on Iran, citing inflation risks from rising global commodity prices.

Israel said on Friday it targeted nuclear facilities, ballistic missile factories and military commanders in a “preemptive strike” to prevent Tehran from building an atomic weapon.

Several brokerages had initially expected a cut but revised their forecasts after the Israeli strikes sparked fears of a broader conflict. The escalating hostilities triggered a sharp spike in oil prices — a worry for Pakistan given the broader impact on imported inflation from a potentially prolonged conflict and tightening of crude supplies.

Eleven of 14 respondents in a snap poll expected the State Bank of Pakistan (SBP) to leave the benchmark rate unchanged at 12 percent. Two forecast a 100 basis-point cut and one predicted a 50 bps cut.

“There remains an upside risk of a rise in global commodity prices in light of geopolitical tensions which could mark a return to inflationary pressures,” said Ahmad Mobeen, senior economist at S&P Global Market Intelligence.

“The resultant higher import bill could also threaten external sector performance and bring pressure to the exchange rate.”

Inflation in the South Asian country has been declining for several months after it soared to around 40 percent in May 2023.

Last month, however, inflation picked up to 3.5 percent, above the finance ministry’s projection of up to 2 percent, partly due to the fading of the year-go base effects. The SBP expects average inflation between 5.5 percent and 7.5 percent for the fiscal year ending June.

The central bank paused its easing cycle in March after cumulative cuts of 1,000 basis points from a record high of 22 percent, and resumed it with a 100-basis-point reduction in May.

The policy meeting follows the release a tight annual budget, which saw Pakistan raise defense spending by 20 percent but overall expenditure was reduced by 7 percent, with GDP growth forecast at 4.2 percent.

Pakistan says its $350 billion economy has stabilized under a $7 billion IMF bailout that had helped it staved a default threat.

Some analysts are skeptical of the government’s ability to reach the growth target amid fiscal and external challenges.

Abdul Azeem, head of research at Al Habib Capital Markets, which forecast a 50-bp cut, said a lower rate could “support the GDP target of 4.2 percent and reduce the debt financing burden.”


Pakistan condemns ‘illegitimate aggression’ as Israel launches widescale strikes on Iran

Updated 54 min 59 sec ago
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Pakistan condemns ‘illegitimate aggression’ as Israel launches widescale strikes on Iran

  • Israel hits nuclear facilities, ballistic missile factories and military commanders in operation to prevent Tehran from building atomic weapon
  • 200 Israeli jets took part in strikes and hit over 100 targets, military spokesman says, Tehran launches 100 drones toward Israel in retaliation

ISLAMABAD: Pakistan on Friday condemned what it called Israel’s “unjustified and illegitimate aggression” against Iran after strikes targeted nuclear facilities, ballistic missile factories and military commanders as part of an operation to prevent Tehran from building an atomic weapon.

Israel launched strikes on Iran early Friday, with black smoke rising from around its main nuclear enrichment facility. Iran’s elite Revolutionary Guards corps said its top commander, Hossein Salami, was killed and state media reported the unit’s headquarters in Tehran had been hit. Several children had been killed in a strike on a residential area in the capital, it said.

The International Atomic Energy Agency said on Friday there was no increase in radiation levels at the Natanz nuclear site, citing information given by Iranian authorities.

Israeli military spokesman Brig. Gen. Effie Defrin said 200 Israeli fighter jets took part in the strikes, hitting more than 100 targets in Iran, which had launched about 100 drones toward Israeli territory in retaliation.

“Pakistan strongly condemns the unjustified and illegitimate aggression by Israel against the Islamic Republic of Iran,” the Pakistani foreign office said in a statement, warning that the escalation posed “a serious threat to regional peace and security.”

The foreign ministry said Israel had violated Iran’s sovereignty and said the attacks were “contrary to the UN Charter and fundamental principles of international law.”

“Iran has the right to self-defense under Article 51 of the UN Charter,” the statement added.

Pakistan’s Deputy Prime Minister and Foreign Minister Ishaq Dar described the Israeli strikes as a “brazen violation” of Iran’s sovereignty and said they “gravely undermine regional stability and international security.”

“Pakistan stands in solidarity with the government and the people of Iran,” Dar wrote on X.

Dar also said the embassy had set up a 24/7 Crisis Management Unit at the foreign ministry “to ensure safety & security of our nationals / pilgrims in Iran.”

Pakistani Prime Minister Shehbaz Sharif called on the international community and the United Nations to “take urgent steps to prevent any further escalation that could imperil regional and global peace.”

Israeli military spokesperson Defrin said all air defense systems had been activated in response to Iran’s retaliation and the country expected “difficult hours ahead.”

In Washington, the US administration said it was not involved in the Israeli operation, which raises the risk of a fresh escalation in tensions in the Middle East, a major oil producing region.

“Israel took unilateral action against Iran,” US Secretary of State Marco Rubio said in a statement released by the White House. “Our top priority is protecting American forces in the region.”

Saudi Arabia’s foreign ministry also condemned the Israeli strikes.

“The Kingdom condemns these heinous attacks and affirms that the international community and the Security Council bear a great responsibility to immediately halt this aggression,” the Saudi statement said.

Airlines cleared out of the airspace over Israel, Iran and Iraq and Jordan on Friday after the Israelis strikes, Flightradar24 data showed, with carriers scrambling to divert and cancel flights to keep passengers and crew safe.

Iran closed its airspace and Tel Aviv’s Ben Gurion Airport was closed until further notice.

Israeli military Chief of Staff Eyal Zamir said tens of thousands of soldiers had been called up and “prepared across all borders.”

“We are amidst a historic campaign unlike any other. This is a critical operation to prevent an existential threat, by an enemy who is intent on destroying us,” he said.

With inputs from AP and Reuters​​​​​​​


Pakistan, other nuclear states together spent $100 billion on weapons in 2024 — report

Updated 13 June 2025
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Pakistan, other nuclear states together spent $100 billion on weapons in 2024 — report

  • US spent $56.8 billion in 2024, followed by China at $12.5 billion, says International Campaign to Abolish Nuclear Weapons
  • ICAN says level of nuclear weapons spending in 2024 by these nine nations could have paid UN budget almost 28 times over

GENEVA: Nuclear-armed states spent more than $100 billion on their atomic arsenals last year, the International Campaign to Abolish Nuclear Weapons said Friday, lamenting the lack of democratic oversight of such spending.

ICAN said Britain, China, France, India, Israel, North Korea, Pakistan, Russia and the United States together spent nearly $10 billion more than in 2023.

The United States spent $56.8 billion in 2024, followed by China at $12.5 billion and Britain at $10.4 billion, ICAN said in its flagship annual report.

Geneva-based ICAN won the 2017 Nobel Peace Prize for its key role in drafting the Treaty on the Prohibition of Nuclear Weapons, which took effect in 2021.

Some 69 countries have ratified it to date, four more have directly acceded to the treaty and another 25 have signed it, although none of the nuclear weapons states have come on board.

This year’s report looked at the costs incurred by the countries that host other states’ nuclear weapons.

It said such costs are largely unknown to citizens and legislators alike, thereby avoiding democratic scrutiny.

Although not officially confirmed, the report said Belgium, Germany, Italy, the Netherlands and Turkiye were hosting US nuclear weapons, citing experts.

Meanwhile Russia claims it has nuclear weapons stationed in Belarus, but some experts are unsure, it added.

The report said there was “little public information” about the costs associated with hosting US nuclear weapons in NATO European countries, citing the cost of facility security, nuclear-capable aircraft and preparation to use such weapons.

“Each NATO nuclear-sharing arrangement is governed by secret agreements,” the report said.

“It’s an affront to democracy that citizens and lawmakers are not allowed to know that nuclear weapons from other countries are based on their soil or how much of their taxes is being spent on them,” said the report’s co-author Alicia Sanders-Zakre.

Eight countries openly possess nuclear weapons: the United States, Russia, Britain, France, China, India, Pakistan and North Korea.

Israel is widely assumed to have nuclear weapons, although it has never officially acknowledged this.

ICAN said the level of nuclear weapons spending in 2024 by these nine nations could have paid the UN budget almost 28 times over.

“The problem of nuclear weapons is one that can be solved, and doing so means understanding the vested interests fiercely defending the option for nine countries to indiscriminately murder civilians,” said ICAN’s program coordinator Susi Snyder.

The private sector earned at least $42.5 billion from their nuclear weapons contracts in 2024 alone, the report said.

There are at least $463 billion in ongoing nuclear weapons contracts, some of which do not expire for decades, and last year, at least $20 billion in new nuclear weapon contracts were awarded, it added.

“Many of the companies that benefited from this largesse invested heavily in lobbying governments, spending $128 million on those efforts in the United States and France, the two countries for which data is available,” ICAN said.

Standard nuclear doctrine — developed during the Cold War between superpowers the United States and the Soviet Union — is based on the assumption that such weapons will never have to be used because their impact is so devastating, and because nuclear retaliation would probably bring similar destruction on the original attacker.


Pakistan’s Sindh, Khyber Pakhtunkhwa provinces to present budgets 2025-26 today

Updated 13 June 2025
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Pakistan’s Sindh, Khyber Pakhtunkhwa provinces to present budgets 2025-26 today

  • Pakistan’s federal government announced its budget 2025-26, with total outlay of $62 billion, on Tuesday
  • Sindh CM Murad Ali Shah, who also holds finance portfolio, will present budget at 3:00 pm, says state media

KARACHI: Pakistan’s Sindh and Khyber Pakhtunkhwa (KP) provinces will present their annual budgets for the fiscal year 2025-26 today, Friday, in their respective assemblies, state-run media reported.

The development will take place a few days after Pakistan’s central government announced the federal budget for the fiscal year 2025-26 with a total outlay of Rs7.57 trillion ($62 billion). Finance Minister Muhammad Aurangzeb presented the budget in parliament on Tuesday, which allocates Rs2.55 trillion ($9 billion) for defense spending in FY26, compared to Rs2.12 trillion in the fiscal year ending this month.

Pakistan’s provincial governments announce their annual budgets typically a few days after the federal government. KP Minister for Finance Aftab Alam Afridi will present the budget in the KP Assembly at 3:00 pm, state broadcaster Radio Pakistan reported.

“In Sindh, Chief Minister Syed Murad Ali Shah, who also holds the portfolio of finance will present the budget in Sindh assembly in Karachi at three in the afternoon,” the report said.

The state media said Pakistan’s most populous Punjab province will announce its budget on Monday.

The federal government announced a significant income tax relief for the salaried class in its budget earlier this week, aiming to ease the burden on people amid high inflation and economic uncertainty. The income tax rate for individuals earning between Rs600,000 and Rs1.2 million ($2,128–$4,255) annually would be cut from 5 percent to 2.5 percent.

“For those earning up to Rs22,000,000 [$7,788], the tax rate has been proposed at 11 percent instead of 15 percent. Similarly, those who earn a higher salary, there is a proposition of tax reduction,” Aurangzeb said.

“For those who are earning between Rs22,000,000 [$7,788] up to Rs32,000,000 [$11,328], the tax rate has been proposed to be reduced from 25 percent to 23 percent,” he added.

For high-income earners making over Rs10 million ($35,460) annually, a 1 percent reduction in the additional surcharge has been recommended to help curb the ongoing brain drain, the minister said.

BUDGET 2025-26 HIGHLIGHTS:

GDP/DEFICIT

* GDP growth projected to be 4.2 percent

* Nominal GDP seen at 129.57 trillion rupees

* Fiscal deficit expected to be 3.9 percent of GDP

* Targets primary surplus of 2.4 percent of GDP

INFLATION

* Targets inflation at 7.5 percent

EXPENDITURE

* Total spending seen at 17.57 trillion rupees

* Defense expenditure of 2.55 trillion rupees targeted

* Interest payments projected at 8.21 trillion rupees

REVENUE

* Total gross revenue of 19.28 trillion rupees targeted

* Targets total tax revenue of 14.1 trillion rupees

* Aiming for net external receipts of 106 billion rupees

($1 = 282.0000 Pakistani rupees)


In a Pakistan valley, a small revolution among women

Updated 13 June 2025
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In a Pakistan valley, a small revolution among women

  • Woman-led carpentry shop in Hunza Valley has trained around 100 women since 2008, employs 22 people
  • Experts say high literacy rate driving socio-economic progress of women in Hunza compared to rest of Pakistan

KARIMABAD, Pakistan: In a sawdust-filled workshop nestled in the Karakoram Mountains, a team of women carpenters chisel away at cabinets — and forge an unlikely career for themselves in Pakistan.

Women make up just a fraction of Pakistan’s formal workforce. But in a collection of villages sprinkled along the old Silk Road between China and Afghanistan, a group of women-led businesses is defying expectations.

“We have 22 employees and have trained around 100 women,” said Bibi Amina, who launched her carpentry workshop in 2008 at the age of 30.

Hunza Valley’s population of around 50,000, spread across mountains abounding with apricot, cherry, walnut and mulberry orchards, follow the Ismaili branch of Shiite Islam.

Ismailis are led by the Aga Khan, a hereditary position held by a family with Pakistani roots now living in Europe.

The family opened a girls’ school in Hunza in 1946, kickstarting an educational investment that pushed the valley’s literacy rate to 97 percent for both men and women. That rate far outstrips the country average of around 68 percent for men and 52.8 percent for women.

As a result, attitudes have shifted, and women like Amina are taking expanded roles.

“People thought women were there to wash dishes and do laundry,” Amina said of the generation before her.

Trained by the Aga Khan Foundation to help renovate the ancient Altit Fort, Amina later used her skills to start her own business. Her carpenters are currently at work on a commission from a luxury hotel.

Only 23 percent of the women in Pakistan were officially part of the labor force as of 2024, according to data from the World Bank.

In rural areas, women rarely take on formal employment but often toil in the fields to support the family’s farming income.

In a Gallup poll published last year, a third of women respondents said their father or husband forbade them from taking a job, while 43.5 percent said they had given up work to devote themselves to domestic tasks.

Cafe owner Lal Shehzadi spearheaded women’s restaurant entrepreneurship in Hunza.

She opened her cafe at the top of a winding high street to supplement her husband’s small army pension.

Sixteen years later, her simple set-up overlooking the valley has become a popular night-time tourist attraction. She serves visitors traditional cuisine, including yak meat, apricot oil and rich mountain cheese.

“At the start, I used to work alone,” she said. “Now, 11 people work here and most of them are women. And my children are also working here.”

Following in Shehzadi’s footsteps, Safina quit her job to start her own restaurant around a decade ago.

“No one wanted to help me,” she said. Eventually, she convinced family members to sell two cows and a few goats for the money she needed to launch her business.

Now, she earns the equivalent of around $170 a month, more than 15 times her previous income.

The socio-economic progress of women in Hunza compared to other rural areas of Pakistan has been driven by three factors, according to Sultan Madan, the head of the Karakoram Area Development Organization and a local historian.

“The main reason is the very high literacy rate,” he told AFP, largely crediting the Aga Khan Foundation for funding training programs for women.

“Secondly, agriculture was the backbone of the economy in the region, but in Hunza the landholding was meager and that was why women had to work in other sectors.”

Women’s increased economic participation has spilled into other areas of life, like sports fields.

“Every village in the valley has a women’s soccer team: Gojal, Gulmit, Passu, Khyber, Shimsal,” said Nadia Shams, 17.

On a synthetic pitch, she trains with her teammates in jogging pants or shorts, forbidden elsewhere by Pakistan’s dress code.

Here, one name is on everyone’s lips: Malika-e-Noor, the former vice-captain of the national team who scored the winning penalty against the Maldives in the 2010 South Asian Women’s Football Championship.

Fahima Qayyum was six years old when she witnessed the killer kick.

Today, after several international matches, she is recruiting the next generation.

“As a girl, I stress to others the importance of playing, as sport is very good for health,” she told AFP.

“If they play well, they can also get scholarships.”