State Bank of Pakistan (SBP) Governor Jamil Ahmad announced that a drop in the key interest rate to 13% will save the government Rs1.5 trillion in interest payments during the current fiscal year (FY25).
Speaking to a private news channel, the Governor of the State Bank of Pakistan said that this saving will support the government in achieving the fiscal deficit target of 6%.
“When the budget was formulated, the projected interest rate was 22%,” Ahmed explained. “With the interest rate now reduced to 13%, and government borrowing at around 12%, we estimate that the budgeted interest payments of Rp9.8 trillion will fall to Rp8.3 trillion.” .
The Bank of England Governor’s comments follow the Monetary Policy Committee’s (MPC) decision on Monday to cut the key interest rate by 200 basis points, marking the fifth consecutive rate cut since June 2024, when the rate reached 22%.
Headline inflation eased to 4.9% year-on-year in November 2024, driven by lower food inflation and the waning impact of a gas tariff increase introduced a year ago, the MPC said in its statement. However, core inflation remains steady at 9.7%, while inflation expectations remain volatile.
The Monetary Policy Committee confirmed that its measured reductions in interest rates work to balance inflationary pressures and stabilize the external account, which supports sustainable economic growth.
In a press conference after the Monetary Policy Committee, the State Bank of Pakistan revealed that Pakistan’s external debt obligations for fiscal year 2025 are estimated at $26.1 billion, including $22.1 billion in principal repayments and $4 billion in interest. To date, $10.4 billion has been settled or rescheduled, including $5.4 billion in renewals.
The central bank expects a large portion of the remaining debt to be renewed, with $5 billion expected to be repaid during the remainder of FY25.
Ahmed also stated that under the IMF programme, Pakistan’s bilateral partners have confirmed to both the government and the IMF their commitment to replenish deposits until June 2027, to support the country’s external financing needs.