Economy at an Important Crossroads in 2025

February 3, 2025 Mahi Bukhari

Rate Cuts and Mega Projects Like Gwadar, Reko Diq Shape Nation’s Economic Future

Introduction

Pakistan’s economic trajectory in 2025 is being shaped by critical policy shifts, investment projects, and global economic trends. With the government focusing on monetary easing, strategic infrastructure development, and foreign investment, the nation stands at a defining moment. While interest rate cuts offer hope for economic revitalization, large-scale projects like Gwadar and Reko Diq hold the potential to transform the country’s financial landscape. However, challenges such as poverty, governance concerns, and military involvement in economic decision-making raise important questions about the future.

This article explores Pakistan’s economic outlook in 2025, analyzing key trends, challenges, and opportunities that will determine its path forward.

Pakistan’s Interest Rate Cuts: A Push for Economic Growth

Monetary Policy Easing

To stimulate economic growth and control inflation, the State Bank of Pakistan (SBP) has aggressively reduced its policy rate. On January 27, 2025, the central bank announced a 100-basis-point cut, lowering the policy rate to 12%. This marks the sixth consecutive rate cut since June 2024.

Inflation Trends and Future Rate Cuts

In December 2024, Pakistan recorded an inflation rate of 4.1%, the lowest in over six years.
Analysts predict that if inflation remains low, more rate cuts could follow in the coming months.

Impact on the Economy

Lower interest rates are expected to:
✅ Encourage borrowing and investment
✅ Boost real estate, manufacturing, and small businesses
✅ Reduce the cost of capital for businesses

However, economic experts warn that for these benefits to materialize, fiscal discipline, stable governance, and external funding are necessary to manage Pakistan’s growing debt burden.

Military’s Growing Role in Economic Decision-Making

Special Investment Facilitation Council (SIFC)

The military’s role in economic governance has expanded through the Special Investment Facilitation Council (SIFC), co-chaired by Army Chief Asim Munir. The SIFC oversees key sectors such as:

Agriculture
Tourism
Natural resources

Supporters vs. Critics

✔ Supporters argue that military involvement:
✅ Reduces bureaucratic inefficiencies
✅ Attracts foreign investment
✅ Ensures faster project execution

❌ Critics raise concerns about:
🚨 Transparency and civilian oversight
🚨 Democratic governance
🚨 Long-term economic sustainability

The debate over military-led economic initiatives continues. While short-term efficiency gains are evident, the long-term impact on governance remains uncertain.

Gwadar: A Strategic but Challenged Economic Project

The Vision for Gwadar

Gwadar, a major component of the China-Pakistan Economic Corridor (CPEC), was envisioned as a regional trade hub. With its deep-sea port and strategic location, Gwadar was expected to:
✅ Attract foreign investment
✅ Enhance Pakistan’s trade connectivity
✅ Boost economic growth

Challenges Hindering Gwadar’s Progress

1️⃣ Security concerns and local unrest
2️⃣ Slow infrastructure development
3️⃣ Lack of economic benefits for local communities

Despite infrastructure developments such as a new airport and port expansions, progress has been slow. Addressing local grievances and governance issues will be crucial to unlocking Gwadar’s potential.

Reko Diq: A Game-Changer for Pakistan’s Economy

Reviving the Reko Diq Mining Project

One of the most promising economic developments is the revival of the Reko Diq copper and gold mining project. This joint venture between Barrick Gold and the Government of Pakistan is projected to generate $74 billion in revenue over the next 37 years.

Economic Impact of Reko Diq

$5.5 billion investment in Phase 1
Production of 200,000 tonnes of copper annually
Phase 2 expansion expected to double production capacity

If successfully implemented, Reko Diq could:
✅ Strengthen Pakistan’s foreign exchange reserves
✅ Reduce dependency on imports
✅ Boost employment in the mineral sector

The project’s success will depend on efficient execution, transparent governance, and favorable global commodity prices.

Poverty and Economic Inequality: A Growing Concern

Rising Poverty Levels

Despite economic progress in some areas, poverty remains a critical issue.

A World Bank report shows that poverty in Pakistan increased from 21.9% in 2018-19 to 25.3% in 2022-23.
Causes of rising poverty:
- COVID-19 pandemic impact
- Inflation and high living costs
- Climate-related disasters

Future Outlook

📉 With sustained economic recovery, poverty levels could decline to 18.7% by 2025.
🔹 However, achieving this target requires strong social protection programs, education, and healthcare reforms.

The government must focus on inclusive economic policies to ensure growth benefits reach all income groups.

Conclusion: Navigating Pakistan’s Economic Future

Pakistan’s economy in 2025 presents a mixed picture of opportunities and challenges.

✔ Positive Developments:
✅ Interest rate cuts are encouraging investment.
✅ Reko Diq and Gwadar have the potential to transform key sectors.
✅ Foreign investment could drive long-term growth.

❌ Challenges Remain:
🚨 Military’s role in economic governance raises concerns.
🚨 Rising poverty needs urgent attention.
🚨 Infrastructure delays hinder progress.

For sustainable economic growth, policymakers must focus on:
➡ Structural reforms
➡ Improving ease of doing business
➡ Attracting and retaining foreign investments

By addressing governance challenges and fostering economic stability, Pakistan can move towards a prosperous and resilient future.

FAQs

1. What is the current interest rate in Pakistan in 2025?

As of January 27, 2025, the State Bank of Pakistan (SBP) has set the policy rate at 12% after multiple reductions since June 2024.

2. How is the military involved in Pakistan’s economy?

The Special Investment Facilitation Council (SIFC), co-chaired by the Army Chief, oversees key economic sectors, aiming to attract investment and improve efficiency.

3. What is the significance of Gwadar for Pakistan’s economy?

Gwadar is a strategic port city under CPEC, expected to enhance trade, attract foreign investment, and boost economic growth. However, security concerns and infrastructure delays have hindered its full potential.

4. How will the Reko Diq project impact Pakistan’s economy?

Reko Diq is projected to generate $74 billion in revenue over 37 years, significantly boosting foreign exchange reserves and creating job opportunities in the mining sector.

5. What steps are needed to reduce poverty in Pakistan?

To reduce poverty, Pakistan must expand social protection programs, improve education and healthcare, and promote inclusive economic policies.