Pakistan’s macroeconomic conditions are showing signs of stabilisation, supported by a moderate growth recovery and improved external buffers, though the outlook remains fragile amid inflationary pressures and global uncertainties. Within this environment, the more critical issue lies in the allocation of private-sector credit rather than its overall availability, says ICMA Research and Publications.

In an analysis, it mentions that the State Bank of Pakistan has raised policy rate to 11.50% in its latest Monetary Policy Committee decision to contain inflationary pressures and respond to rising global uncertainty linked to the prolonged Middle East conflict. “While the stance aims to stabilise prices and anchor expectations, credit flows remain misaligned with sectoral growth dynamics.”

Macroeconomic indicators remain broadly stable, with GDP growth at 3.8% in H1 FY26, a current account surplus during July-March FY26, and foreign exchange reserves rising to $15.8 billion supported by external inflows and improved financial conditions. However, the research cautions that this stability coexists with structural weaknesses in credit allocation that may limit medium to long-term growth potential.

In simple terms, when credit grows faster than output, it signals possible inefficiency. When output grows faster than credit, it indicates underfinancing. When both move together, allocation is broadly balanced.

Agriculture shows credit growth exceeding output growth, which may reflect timing effects linked to crop cycles rather than immediate inefficiency, but it requires close monitoring.