Leveraging recent successes to accelerate reforms and growth

The recent decline in Pakistan's inflation rate to 9.6% is a significant achievement, marking the lowest level in three years. This represents a 65% drop compared to August 2023. Hopefully, this should result in several economic benefits, such as enhanced consumer purchasing power, stabilised business costs, and improved government finances. It is time for the State Bank to consider a substantial reduction in interest rate considering the rather wide gap of over 100% between inflation and interest rate. India's 6.5% interest rate has stayed consistent for the last several months despite inflation hovering around 5%. A significant rate cut would help reduce debt servicing costs and spur economic activity. Adding to the positive momentum, international rating agencies like Moody's and Fitch have recently upgraded Pakistan's ratings. Furthermore, Moody's has also adjusted the outlook to positive from stable. As a result, Pakistan is now in a better position to raise new foreign debt by selling Panda/ Green/ Eurobonds and Sukuk at lower costs. The remarkable performance of the Pakistan Stock Exchange (PSX) – which became the best-performing equity market globally during FY 2023-24, delivering an impressive annual return of 89% in PKR terms and 94% in USD terms – is a strong indicator of the market's belief that economic conditions have significantly improved.