Structural impediments are challenges to sustaining macroeconomic stability in Pakistan, the State Bank of Pakistan’s annual report on the state of the country’s economy has found, the central bank said on Thursday.

“Falling investment … unfavourable business environment, lack of research and development, and low productivity, alongside climate change risks continue to constrain the economy’s growth potential,” the bank said in a statement.

The central bank has expressed concerns over persistent inefficiencies in the energy sector, which have led to the buildup of circular debt. In its recent report, the SBP stressed the need for comprehensive policy and regulatory reforms to enhance the sector’s efficiency.

While acknowledging that the government has begun tackling energy-related challenges through significant price adjustments, the SBP argued that a broader approach is necessary.

The report highlighted that state-owned enterprises continue to place a strain on fiscal resources, particularly given the country’s low tax-to-GDP ratio.

On a more optimistic note, the SBP pointed to improved macroeconomic conditions, largely due to the International Monetary Fund’s Extended Fund Facility, which received Board approval in September. The bank noted that the IMF programme is expected to bolster the nation’s external account position, improve its sovereign credit rating, and enhance investor confidence.

Additionally, the SBP remarked on favourable global economic conditions, with falling inflation in advanced economies and steady global growth projections. As a result, recent data suggests that average inflation in Pakistan may drop below previous forecasts of 11.5% to 13.5% for the fiscal year 2025.