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SBP projects 3.25pc growth in FY26

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KARACHI: The State Bank of Pakistan (SBP) has projected real GDP growth to remain near the lower end of its earlier estimate — around 3.25pc — for FY26, while warning that headline inflation may exceed 7pc in the second half of the fiscal year, breaching the upper bound of the medium-term target range of 5-7pc.

In its Annual Report on the State of Pakistan’s Economy 2024-25, released on Thursday, the SBP noted that while there has been a partial recovery in industrial activity, macroeconomic risks remain, including pressure on inflation, fiscal accounts, and external balances.

GDP growth for FY25 was revised up to 3.02pc from 2.68pc, following a sharp rebound in the fourth quarter. Industrial output rose by 19.9pc in Q4, after growing marginally in the first three quarters — 0.3pc in Q1, 0.2pc in Q2, and 1.2pc in Q3. This late surge was driven by value addition in electricity, gas, water supply, and construction. Manufacturing, particularly small-scale manufacturing, also contributed, though mining and quarrying continued to contract for the fourth consecutive year.

The central bank emphasised the need for structural reforms to enhance economic resilience and position the economy on a sustainable path of high growth. Key areas identified include promoting savings and investment, improving resource allocation, and advancing institutional and regulatory reforms to enhance competitiveness.

Twin deficit/inflation

The report flagged that increased economic activity and expected agricultural shortages may lead to higher imports in FY26. However, lower US tariffs on Pakistani exports and sustained workers’ remittances could help mitigate the current account deficit. The SBP projects the current account deficit (CAD) to range between 0-1pc of GDP in FY26.

On the fiscal side, continued tax reforms and efforts to document the economy are expected to strengthen revenue mobilisation. Additional support is expected from the transfer of SBP profits in August 2025. As a result, the fiscal deficit is projected to fall within a range of 3.8-4.8pc of GDP in FY26.

Despite a relatively stable global commodity outlook and subdued domestic demand, inflationary pressures may resurface. “Headline NCPI inflation may cross the upper bound of the medium-term target range in the second half of FY26, before returning to the range in FY27,” the SBP stated. It noted upside risks from flood-related damage to agriculture and infrastructure, and warned of downside risks to growth from geopolitical and trade uncertainty.

The report also pointed to structural weaknesses in financial intermediation. Elevated government borrowing has crowded out private sector credit, with banks preferring to invest in government securities due to their high returns and low risk. This trend, the SBP noted, contributes to Pakistan’s low credit-to-GDP ratio compared to peer economies and undermines financial development, discouraging both savings and private investment.

Private construction activity remained sluggish due to rising input costs and higher property taxes, despite increased development spending supporting public sector construction.

SBP reserves rise $21m

The foreign exchange reserves held by the SBP increased by $21 million to $14.441 billion during the week ended on October 10, the central bank reported on Thursday.

The country’s total liquid foreign exchange reserves stood at $19.811bn, including $5.369bn held by commercial banks.

Published in Dawn, October 17th, 2025



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Cooling Karachi with green buildings

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Karachi’s urban context is characterised by dense and narrow streets, frequent and long power outages, limited ventilation, and a general inability to afford air-conditioning, which often results in energy theft. In such environments, making green building codes mandatory is a required shift from governing and development bodies. Temperatures are rising every year, as is inflation, making thermal comfort unaffordable for lower as well as middle-income groups.

Regulations can be tailored to development size, with support mechanisms for enforcement, legal implications, and economic benefits of each law. Right now, most green ratings, such as LEED [Leadership in Energy and Environmental Desigh] or EDGE [Excellence in Design for Greater Efficiencies], are only relevant for high-end projects, therefore irrelevant for low- and middle-income developments.

Karachi’s current bylaws require that rooms in a building or house have a minimum percentage of openings or windows; for example, in a living room the opening size should be 10 per cent of the area of the room; this changes to 7.5pc for other rooms and 15pc for the kitchen.

All this looks impressive on paper, but that does not guarantee human comfort. These regulations were written decades ago, focusing on hygiene, and are not practical for today’s extreme heat.

The city’s building codes must take into account the sweltering heat when most of its people can’t afford to keep cool

Building codes in neighbouring countries, like India, or international standards like ASHRAE [American Society of Heating, Refrigerating and Air Conditioning Engineers] are focusing on performance. Instead of specifying how big a window should be, we need to ask basic design questions like, ‘Does this room have adequate fresh air? Is it designed to allow cross ventilation?’

The building codes in India ensure cross-ventilation in at least two rooms of every house, while internationally the number of times air should be replaced each hour to keep people comfortable is also specified. Karachi’s bylaws should enforce wind direction consideration and encourage the use of high and low vents, cement lattices, roof turbines, etc to ensure habitability during power outages. Ventilation is considered a formality, but elsewhere it is considered a necessity for making buildings habitable and comfortable.

Furthermore, roof cooling treatments should be made mandatory, like reflective lime plaster, reflective paints, or clay tile surfacing. Integration of green roofs in projects above 500 sqm, depending on optimum load capacity, should be compulsory. The CoolRoof Programme in Ahmedabad started as a pilot and is now a municipal regulation, serving as a key example from our own context. In the same vein, the use of solid blocks without insulation should be banned for south-facing external walls. While builders argue against prices of such products, it has overall reduced the structural cost of the building due to reduced load, hence it is more a matter of convenience rather than cost.

Another way to improve comfort is to make all external plaster/paint meet minimum reflectance, hence reflecting the maximum amount of radiation from the sun instead of absorbing it.

Countries like Bangladesh, India, and Egypt have set U-values (how fast heat dissipates) and R-values (the wall’s resistance to heat) for any construction, which mandate the use of insulated materials. Karachi desperately needs such a green building code.

As for the surrounding area, shading devices such as chajjas, verandahs, or sun breakers should be mandatory on south- and west-facing facades. The devices should leave 50pc uncovered yard space that lets rainwater soak in and trees grow, with one shaded tree per 30ft of frontage compulsory.

Efficient water management can also play an important role in cooling our city. Rainwater harvesting pits, permeable paving and low-flow fixtures in homes can help cut wastage. For larger projects, a required portion of grey water (from sinks and showers) is to be recycled for landscaping or flushing. This will ensure that saving water becomes a standard like laying bricks.

For effective implementation, the builder community must foresee the financial value in adopting these rules. While this can bring prestige and recognition in upper-income residential projects, middle- and lower-middle-income group housing needs to be targeted. Bulk procurement, tax breaks and reduced approval fees can be offered as incentives.

Finally, instead of solely relying on government agencies, which are often mistrusted, incentives could be built into the system. For example, housing finance institutions and banks can offer lower interest rates and easier loan terms for greener projects. The creation of bulk-purchasing networks by material suppliers will ensure that eco-friendly products are available at lower prices so the builders naturally shift towards them. Housing cooperatives, neighbourhood associations and buyers’ groups can create a demand for cooler homes; builders will adapt for competition.

These are not luxury ideas but a necessity for survival in a city where most people cannot afford air-conditioning. Government agencies, private institutions and citizens must act with urgency to ensure comfortable living across all income groups.

The writer is an architech and urban planner, currently leading her own practice, “Beyond Facades”

Published in Dawn, The Business and Finance Weekly, October 27th, 2025



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Govt to defer gas import plans as demand eases, LNG glut extends

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• UK-based firm projects 3pc fall in national gas demand during 2025-40
• Urges reforms as circular debt rises due to price distortions, market imbalances

ISLAMABAD: Despite population projections of 325 million over the next 15 years and rising overall energy needs, Pakistan may have to put off gas import options owing to declining demand until 2040 and the surplus of liquefied natural gas (LNG) going beyond 2031.

Sources told Dawn that an “all-of-government” approach is under consideration to slow-pedal both pipeline imports — from Turkmenistan and Iran — and readjust LNG supply schedules, while pushing through structural reforms to underpin sustainable growth.

The rethink follows a study by UK-based consultancy Wood Mackenzie, which projects a three per cent decline in national gas demand during 2025-40 under a business-as-usual scenario, even as total gas availability — including take-or-pay LNG — rises into the early 2030s.

The total gas supply, including that of LNG contracts, has been estimated to peak at five million cubic feet per day (mmcfd) by 2031 from around 3.8mmcfd today, up 31pc.

Demand, on the other hand, is projected to decline by 3.8pc by 2031 and 2.5pc in the subsequent nine years, with a cumulative average of 3pc between now and 2040. This takes into account more than a 12pc fall in the power sector’s gas needs and 2.8pc and 4pc growth in industrial and domestic needs, according to the study reviewed by Dawn.

“A clear pathway to address the structural market issues and towards greater market liberalisation is required as circular debt continues to escalate due to price distortions, inefficient resource allocation and market imbalances,” suggested the consulting firm, pointing out that addressing the root cause of the problem was to fix structural issues that have contributed to the issue of circular debt and to evolve the sector to Pakistan’s needs.

The reform areas would include constraints to investments for fresh exploration and production, weighted average costing of all gas sources, power sector gas offtake issues, forced curtailment of domestic fields, runaway gas losses, limited gas storage and increasing solarisation.

One of the key takeaways from the study is that Pakistan will not require as much LNG as originally anticipated, even in the near to mid-term, hence the need to develop an LNG import strategy to determine measures to deal with existing contractual arrangements, “assessing all options on the table”.

The low demand and higher import contracts are already taking a heavy toll on exploration and development activities in the country, with long-term adverse consequences — gas import costs in any shape are more than double the local production.

On the other hand, the report anticipated a new wave of LNG supply, indicating pricing cuts as the US and Qatar account for more than half of global LNG supply over the next decade, but Pakistan hardly benefits.

“The new wave of LNG supply will start putting pressure on prices from 2026, with the expectation of long-term prices being set by marginal US LNG cargoes,” it said. Simultaneously, LNG demand will be rising by 3pc over the 2025-40 period from over 400 million tonnes per annum to 675 mpta, mainly due to LNG demand growth in the Asia Pacific.

At present, fossil fuels account for about 88pc of total end-use consumption in Pakistan, of which gas and oil account for around 42pc and 29pc, respectively.

By 2040, while still dominant, consumption of fossil fuels is estimated to decline to about 84pc, with gas share coming down to 30pc and share of oil going up to 34pc, mainly owing to growing demand in the transportation sector.

Primary energy demand is expected to grow from about 88 million tonnes of oil equivalent now to over 99 million tonnes by 2030.

The power sector remains the key problem. Pakistan is going through a paradigm shift, both in terms of a reduction in demand (especially power and captive power plants) and the premise of greater availability of domestic supply.

“Full alignment and commitment of the plan for gas offtake from the power sector is crucial as it will shape how Pakistan’s overall gas demand will evolve,” the report said, but warned that challenges of the exploration and production sector will need to be addressed to realise forecasted supplies, as the LNG glut has forced closure of local gas fields.

It noted that while the country had made progress towards macroeconomic stabilisation, further reforms were required to sustain economic growth as the population was expected to reach 325 million by 2040, at a steady growth of 2pc and a young demographic, maintaining its position among the top five most populous countries.

Between 2025-40, economic activity is expected to grow with a long-term GDP compound annual growth rate of 3.7pc. Economic activity is expected to continue recovering, as the economy benefits from the availability of imported inputs, easing domestic supply chain disruptions and lower inflation,” it said.

The study forecast the industrial production achieving an annual growth rate of 4pc over the next 15 years. It also noted that while Pakistan’s growing population offered potential demographic dividend, the country faced significant challenges in harnessing this potential due to existing resource constraints, infrastructure deficits and employment issues. The population growth will nevertheless increase energy demand in residential sectors for heating and cooking and power generation to meet rising electricity needs and transportation.

Published in Dawn, October 27th, 2025



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Challenges to Pakistan’s cotton sector are far from over

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https://www.dawn.com/news/1951371



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