SBP Warns Floods Could Challenge Pakistan’s Economic Recovery
Floods Put Pakistan’s Recovery at Risk, SBP Warns
Pakistan’s economy has been catching its breath after a rough couple of years, but the floods this monsoon are threatening to knock it back down. The State Bank of Pakistan (SBP) just flagged the damage in its mid-year review, warning that torrential rains and overflowing rivers could derail parts of the recovery.
On paper, things had been looking better. Inflation was cooling off, the rupee wasn’t swinging wildly, and banks were reporting solid profits up more than a quarter compared to last year. Credit ratings have even improved, which is rare, good news for a country that often struggles to borrow affordably. By mid-2025, the banking sector was sitting on comfortable capital cushions, and stress tests suggested they could handle serious shocks.
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The trouble is, floods hit where Pakistan is most vulnerable. Agriculture makes up a smaller share of the formal banking system, but it’s still the backbone of rural livelihoods. When crops are washed away, farmers can’t repay loans. Supply chains get messy, food prices jump, and the government ends up stretching its budget for relief and subsidies.
SBP is cautious but not panicked. It points out that agricultural loans aren’t a huge portion of total advances, so the banking system itself won’t collapse from defaults. Banks also have enough buffers to absorb hits. But for the people directly affected the small farmers and rural communities as the losses are very real, and they could ripple out into higher food prices for everyone else.
What happens next depends on the response. The government will probably need to free up funds for rebuilding. Banks might have to offer loan rescheduling in hard-hit areas. And policy makers will have to watch inflation closely, because food price spikes can quickly erode whatever stability has been built.
So, as of mid-September 2025, the story is mixed. Pakistan’s macro indicators look steadier than they have in years, but nature has a way of cutting through optimism. If the floods are managed well, the recovery might bend but not break. If not, the progress made in the first half of the year could feel like it never happened.
