SBP: Fiscal consolidation efforts remained broadly on track

Fiscal consolidation efforts in Pakistan remained broadly on track in the first half of FY2025, supported by prudent budgetary measures and a shift toward stabilizing government spending. The recent federal budget emphasized reducing fiscal deficits and improving public expenditure efficiency, signaling a commitment to long-term economic stability. According to a State Bank of Pakistan (SBP) analysis, government consumption multipliers showed limited expansionary effects, reinforcing the need for targeted fiscal policies rather than broad-based spending increases. Meanwhile, government investment multipliers demonstrated stronger, albeit delayed, impacts, peaking at 1.5 in the eighth quarter, suggesting that strategic public investment yields growth benefits over time. Net tax adjustments, while initially contractionary, eventually contributed positively to economic output, with multipliers turning favorable by the 13th quarter. These findings underscore the importance of maintaining fiscal discipline while prioritizing investments in infrastructure and human capital. As Pakistan continues its fiscal consolidation path, the focus remains on balancing short-term economic challenges with medium-term growth objectives.