Unchanged interest rate
The SBP's decision to maintain its benchmark policy rate at 11% defied widespread market expectations of a cut, but also underscores a necessary, if unpopular, commitment to macroeconomic stability. While inflation plummeted to a nine-year low of 4.49% in FY25 — a dramatic drop from 23.4% the previous year — the central bank made its decision while looking forward, not backward. Recent upward adjustments in energy prices, particularly gas tariffs, threaten to reverse gains in price stability. The SBP projects inflation could breach its five to seven per cent target range in the coming months, necessitating preemptive intervention.
While critics, especially industry groups, have derided the decision, noting the low monthly inflation rate of just 3.2%, the SBP also cited several other uncertainties, including a spike in imports that is also driving up the trade deficit, and volatility in international oil markets. In light of these very real threats to the health of the broader economy, industry groups' demand for lower rates does seem myopic.
Cutting interest rates at this stage would also amount to throwing out all of the stabilisation successes of the past few years, including bolstering foreign exchange reserves, moving the current account into a surplus position, and earning sovereign credit rating upgrades.
Monetary policy cannot operate in isolation. Fiscal slippages, such as the Rs200 billion shortfall in tax revenue, undermine stability and limit the SBP's flexibility. Given the number of Pakistanis who are in poverty or teetering on the edge of poverty, it is also prudent for the SBP to do whatever it can to protect citizens from price shocks. As we saw in the recent sugar fiasco, businesses' decision-making prioritises their own growth and profitability, usually without any concern for their impact on the economy or consumers. The SBP's job is not just to create a business-friendly environment, but to balance the needs of the business with the needs of citizens.
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Business Recorder
4 hours ago
- Business Recorder
The State Bank's role in regulating emerging technology
The State Bank of Pakistan, traditionally known as regulator of the country's credit ecosystem and implementer of its monetary policy, has now found itself operating in unchartered waters, beyond its statutory obligations documented in the SBP Act, 1956 and the Banking Companies Ordinance, 1962. With rapid digitalization of the financial sector and increasing adoption of cross-border payment solutions, Pakistanis facing rising concerns with cybersecurity and protection of sensitive consumer data. The country is witnessing an unprecedented technological revolution, whilst being regulated by outdated consumer data protection laws. The State Bank has taken significant steps to encourage adoption of innovative financial technology in Banks and DFIs, whilst ensuring protection of sensitive consumer data through well-structured frameworks. However, the central banks recent initiative to foster innovation in SECP-regulated and non-regulated entities, goes beyond the scope of its frameworks and is grounded by the outdated Payment Systems & Electronic Fund Transfer (PS&EFT) Act, 2007, a statute brought to law before the advent of modern technology such as Generative AI, Cloud Computing and Big Data. With the absence of modern data protection laws,and the rapid adoption of third-party digital solutions in the financial sector, the State Bank is forced to navigate these statutory gaps on its own. In May 2025, the State Bank issued guidelines for inviting applicants to its newly-launched Regulatory Sandbox. The sandbox is a controlled environment where tech innovators can test novel digital solutions using real consumer data, without being suppressed by regulatory red tape. The sandbox is open to 1) SBP regulated entities such as banks and DFIs, 2) Entities licensed by other regulators such as SECP and 3) Non-licensed entities. This initiative hits the jackpot for fintech solution providers, start-up founders and digital innovators, however, being legally backed by the PS&EFT Act, this leads to concerns for protection of sensitive consumer information. With underdeveloped data protection laws, the State Bank is compelled to serve a dual role: upholder of economic stability, as per its statutory obligations, and now as a de-facto technology regulator. In response to this added responsibility SBP released the Enterprise Technology Governance & Risk Management (ETGRM) Framework in 2017. The framework covers areas such as cybersecurity, third party risk and consumer data protection obligations for licensed banks and DFIs. The regulatory sandbox, however, is legally confined by the PS&EFT Act 2007, a federal statute primarily designed to govern electronic transfers and digital payments, with outdated provisions related to consumer data protection. It fails to address data privacy concerns arising from the technology being developed in the modern digital age. The State Bank is now in a position where its own security standards, developed for SBP regulated entities, have surpassed federal legal obligations, in terms of data protection and cybersecurity provisions. In the EU, UK and other developed countries, regulatory sandboxes have played a pivotal role in successfully launching full-scale neobanks, AI-based financing tools and cross border payment systems. The central banks in these developed countries are not expected to work in regulatory silos and are supported by robust legislation, such as the European Union's AI Act 2024, General Data Protection Regulation (GDRP) and the recently enacted Digital Operational Resilience Act (DORA). In Pakistan, policy failure at federal legislative level, has placed the burden of regulating digital innovation in the financial sector entirely on the central bank. In developed countries, a regulatory sandbox serves as a launchpad, an innovation enabler where fintech products undergo detailed scrutiny to de-risk any shortcomings in their business model before full-scale launch in the market. The central banks, with robust consumer protection laws, are then able to focus on innovation rather than regulation. On the surface, the State Bank of Pakistan's decision to enable fintech experimentation under its supervisory guidance seems to be a significant step towards enhancing digitalization and financial inclusion in the country. However, it is evident the regulator ishaving to use the regulatory sandbox to help identify operational grey areas in the emerging tech landscape. With the absence of historical data and regularity clarity – particularly around consumer data protection and fintech – SBPs sandbox, instead of being a proactive driver of innovation, is a learning tool for assessing new technology in a controlled environment, to understand its scope, enabling its governance after full-scale launch. The Asian Development Bank, in its 2025 diagnostic report on Pakistan's Digital Ecosytem, recommends formalization of an inclusive data governance framework, with clearly defined procedures for data security, privacy and data sharing. Policymakers must recognize the importance of a coherent and future-ready regulatory environment to enable timely adoption of emerging technology whilst safeguarding sensitive consumer information through adoption of a comprehensive digital governance and cybersecurity legislation. The future of financial digitalization in the country depends on the proactive formalization and implementation of an all-encompassing legal framework. With the absence of such reforms, the State Banks non-traditional role in enabling fintech reform risks becoming a bottleneck rather than a pathway to a digitalized economy. The article does not necessarily reflect the opinion of Business Recorder or its owners.
Business Recorder
12 hours ago
- Business Recorder
Beyond flags and fireworks: unfinished task of economic independence
As Pakistan marks its 78th Independence Day, we are called to celebrate not only the birth of a sovereign state but also to reflect, honestly and urgently, on the unfinished business of our independence: economic freedom. For while flags will fly and anthems will rise this August 14th, the sobering reality remains that true independence continues to elude us — not for want of patriotism or potential, but for lack of economic self-reliance, policy clarity, and structural reform. Today, the average Pakistani citizen is burdened under the weight of rising costs, stunted wages, and dwindling opportunities. Our economy continues to rely heavily on external debt, concessional aid, and remittance-fuelled consumption. The vision of an independent, self-sustaining Pakistan — one that was so passionately articulated by Quaid-e-Azam — remains hostage to our inability to transform political will into bold economic choices. Nowhere is our economic entrapment more obvious than in our energy sector. Pakistan has among the highest electricity tariffs in the region — averaging around PKR 50 per unit for residential consumers as of mid-2025 — largely due to capacity payments, inefficiencies in transmission, and the perennial monster of circular debt, which has ballooned to nearly PKR 2.4 trillion. In the petroleum sector too, a distorted pricing mechanism, excessive taxes, systemic leakages and reliance on expensive imported fuel have distorted both consumption and investment decisions. Our taxation regime is similarly punitive and misaligned. Over 60 percent of tax revenue is collected through indirect means, disproportionately impacting the lower and middle classes, while leaving large segments of the elite sectors under-taxed. Agriculture, real estate, and wholesale and retail trade — which together contribute over 35 percent of GDP — continue to largely operate outside the documented economy. It is no surprise then that both local entrepreneurs and foreign investors remain wary of committing capital in a system so burdened by policy uncertainty and inequity. Amidst this stagnation, however, ordinary Pakistanis — both households and businesses — are quietly taking matters into their own hands. Solar panel imports surged to over USD 1.4 billion in FY24 alone, a clear signal that grid defection is no longer a future risk but a present-day reality. Entire housing societies are moving off-grid, factories are turning to hybrid solar-wind setups, and a quiet revolution in distributed energy is already underway. Yet policy continues to lag. We persist in funnelling scarce public resources into subsidizing a broken grid instead of embracing deregulation. Our energy strategies remain locked in supply-side interventions — more power plants, messed up LNG — while the real opportunity lies in enabling open access, competitive retail supply, and genuine consumer choice. Without a massive deregulation drive, we risk ending up with stranded assets and an obsolete grid infrastructure, all while consumers increasingly opt out of the system altogether. The establishment of the Special Investment Facilitation Council (SIFC) has created a unique opportunity — perhaps the most credible institutional innovation in decades — to drive cross-sectoral economic reform through a whole-of-the-government approach. It has brought together civilian ministries, provincial governments, and the military in an unprecedented framework aimed at facilitating investment and cutting through bureaucratic red tape. But institutions, no matter how robust, are only as effective as the political choices that back them. If there was ever a moment to take politically difficult yet economically necessary decisions — whether in power pricing, SOE divestiture, or tax reform — it is now. We must act while there is alignment at the top and a rare confluence of national interest and political pragmatism. As global supply chains diversify and capital seeks new destinations offering both stability and return, Pakistan cannot afford to hesitate. Geopolitically, the tide may finally be turning in our favour. The evolving contours of US trade policy — particularly in a potential post-Trump tariff recalibration — present Pakistan with an opening to expand its exports. With India's trade relationship with the US occasionally strained, and Bangladesh approaching graduation from the Generalized System of Preferences (GSP), Pakistan's textile sector in particular could gain significant ground if supported by a coherent government-to-government and B2B engagement strategy. Pakistan's textile exports to the US crossed USD 5.1 billion in FY24 — a respectable figure, yet still far below our potential. For the fiscal year ending June 2025, exports to the US further rose to around USD 6.03 billion — a 10.7 percent year-on-year increase. If we harmonize the energies of private exporters and government facilitators — particularly by improving compliance with ESG standards, traceability, and labour practices — we could aspire to double this figure over the medium term. Likewise, our IT and Business Process Outsourcing (BPO) sectors, growing at 15 percent annually, need strategic policy support to capture the expanding demand for nearshore digital services in North America. The real challenge, as always, lies in execution. We know what needs to be done: broaden the tax base, deregulate energy, divest loss-making SOEs, digitize governance, and bet on competitive sectors. What we lack is not diagnosis but daring — the courage to prioritize long-term gain over short-term optics, to build national consensus beyond partisanship, and to tell the people the truth: that there is no prosperity without reform, no dignity without documentation, and no independence without economic resilience. We cannot afford to waste another decade in denial. Pakistan's median age is 20.6 years. This generation is connected, conscious, and impatient. They will not be pacified with slogans. They want results — in employment, in energy bills, in upward mobility. If we fail to deliver, we risk a deeper crisis of confidence in the state and its institutions. But if we succeed — if we seize this moment, reform boldly, and act together — we can finally earn the economic independence we have been chasing since 1947. We can become not just a nuclear power, but a functional economy. Not just a strategic location, but a strategic supplier. Not just a state with borders, but a state with purpose. On this Independence Day, let us not merely commemorate our freedom — let us commit to completing it. Copyright Business Recorder, 2025
Express Tribune
16 hours ago
- Express Tribune
Govt relents after traders refuse to budge on demands
The federal government has issued new instructions to pacify the protesting business community and decided to gradually ban major purchases, would treat cash deposits as digital transactions, and linked the use of enforcement powers with consent of the grievances redressal committees. The Federal Board of Revenue (FBR) has issued two separate circulars to explain the taxation measures introduced in the budget and give effect to the understanding reached with the business community. The government has tried to address the concerns of the traders by softening the harsh provisions of the tax laws related to enforcement measures with subordinate legislation. According to the explanatory circular, the FBR maintained that "the board will also ensure that the provisions related to enforcement are carried out in a judicious manner with the redressal committees, consisting of representatives of business community and the Board". The traders closed shops in Lahore and Karachi last month against the government measures including giving the FBR arrest powers in tax fraud cases, allowing it to treat half of the cash expenses over Rs200,000 as income, deploying taxmen in business premises and authorising them to arbitrarily reduce tax refund claims. The FBR has now modified its position on cash expenses and stated that "when a person, whether a national tax number holder or otherwise, deposits the cash against invoices in the bank account of the seller, the payment shall be treated as having taken place through banking channel and no disallowance of the expenditure will be made in this regard under this clause". The explanation through subordinate legislation suggests a significant change in the FBR's earlier stance. The FBR, however, added that the expenditure disallowance power was aimed at enabling the formal sector to capture more market share as compared to that of the informal sector. It further said that this provision will not apply to agricultural produce unless it is sold by middle men. This provision also authorises the board to exempt any class of persons subject to conditions and limitations as it deems appropriate. While explaining the powers to arrest in tax fraud cases, the FBR said that the powers and procedure of inquiry and investigation in cases of sales tax fraud and other offences warranting prosecution under the Sales Tax Act have been streamlined. Warrant of arrest may be issued only after approval from a committee, comprising of three members of the FBR, as may be notified by the chairman, and that too only in the cases where fraud involves amount exceeding Rs50 million and nature of the fraud falls within the ambit of any of the first six sub clauses of the clause (37) of section 2, it added. The FBR said that the officer can only arrest a person, if there is a chance that the accused may tamper with documents, the accused may abscond and the accused does not help investigations despite three served notices However, the explanatory circular also underlined that the tax commissioner can obtain subscriber's information pertaining to the internet protocol in connection with any inquiry or investigation in tax fraud cases from any internet service provider, telecommunication companies and the Pakistan Telecommunication Authority (PTA). The FBR further said that sufficient safeguards have been introduced and multiple approvals are required at inquiry stage as well as investigations stage to prevent the misuse of the provisions of prosecution. The FBR has also altered the mechanisms that it had defined to use artificial intelligence for the purpose of identifying tax evasion by authorising its officers to reduce the amount of sales tax refund claims. The FBR had taken the authority to fix a certain limit of input tax adjustment based on Compliance Risk Management (CRM). The FBR said that now the "input restrictions and conditions shall not be altered without meaningful consultation with the business and trade representatives related to the sector for which such action is intended". The explanation implies that if the FBR has any doubts about the attempt to evade taxes by claiming higher refunds, it would first consult with chambers before making any decision. Last month, the FBR had given nearly 11,000 nudging notices on sales tax anomalies being identified through the CRM system. The FBR also explained its enforcement powers against hard to tax persons and promote documentation of the economy. It added that these measures include bar on the operation of bank accounts, bar on the transfer of immovable property, sealing of business premises, seizure of immovable property and appointment of a receiver. "However, these enforcement measures shall be carried out in conformity with natural principles of justice and in a sequential manner to avoid undue hardships", the FBR explained. It further stated that before taking any extreme measure like freezing bank accounts or business premises, a public notice of hearing will be given and hearing will be conducted jointly by a concerned representative of the chamber of commerce and trade and concerned officer of Inland Revenue. Such decisions will also be made public by placement on FBR's website and newspapers, it added.
