Pakistan’s economic policies resemble a car with two drivers, each pulling the wheel in opposite directions. One foot accelerates through aggressive fiscal spending; the other jams the brakes via tight monetary policy. This conflicting approach makes genuine economic progress nearly impossible.

Consider the recent policy stance of the State Bank of Pakistan (SBP). For most of fiscal year 2024–25, the SBP held interest rates at a punishing 22 percent, aiming to tame inflation. As inflation rates began to decline from over 22 percent in June 2024 to around 15 percent in November 2024, the central bank still kept rates high.

According to the latest Pakistan Economic Survey 2024–25, by the fiscal year-end, inflation settled remarkably lower at 4.6 percent, validating the case for a timely rate cut. In 2025, rates were gradually reduced to 11 percent, following a final 100 basis points cut in May. This delayed monetary adjustment came with a heavy cost: interest payments soared to Rs7.764 trillion over the full year, consuming the largest share of current expenditures and crowding out space for development-oriented initiatives.

Since most government securities were on floating rates, earlier relaxation of the monetary stance could have sharply reduced this burden. Such heavy borrowing costs inevitably restricted the government’s budgetary room for essential public investment. The IMF has repeatedly flagged that prolonged high interest rates, while slowing inflation, also compound the fiscal burden by inflating domestic debt service costs, creating a self-defeating loop for developing economies.

Pakistan’s own data reflects this policy mismatch, as the IMF noted that real GDP growth in the first two quarters of FY2024–25 remained subdued—1.3 percent and 1.7 percent—despite easing headline inflation. The Economic Survey confirms the full-year GDP growth eventually stood at 2.7 percent, highlighting the missed opportunity for higher growth had the central bank pivoted sooner.

At the same time, fiscal authorities projected ambitious numbers. Gross revenue receipts for FY2024–25 were budgeted at Rs17,815 billion, with Rs12,970 billion targeted from FBR taxes. However, the Pakistan Economic Survey 2024–25 revealed that the FBR collected a total of Rs10.23 trillion, falling short by a staggering Rs1.03 trillion—roughly 8 percent below target. This shortfall was concentrated in sales tax and customs duties, which underperformed due to import compression and........

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