Pakistan’s economy has entered fiscal year 2025-26 on a stronger footing, with the finance ministry highlighting encouraging signs of resilience and growth momentum carried forward from the previous year. The August 2025 Monthly Economic Update and Outlook emphasized that recent reforms, favorable trade dynamics, and stabilizing macroeconomic indicators have created a positive start to the new fiscal year.
According to the report, the country’s external sector has shown notable stability, with a narrower current account deficit and an exchange rate holding firm. The ministry noted that ongoing investment facilitation measures and policies to promote private sector-led growth have reinforced confidence in the business environment. This optimism has been further supported by accommodative monetary policy and a global trade landscape that is currently favorable for emerging economies.
One of the major highlights for Pakistan’s trade prospects is its recent deal with the United States, which is expected to provide fresh opportunities for exports. Stronger demand from trading partners, combined with steady remittance inflows, is projected to counterbalance import pressures arising from tariff rationalization. These developments have placed Pakistan’s external account on a more sustainable path while improving investor sentiment.
Inflation, although showing a marginal uptick in July, remains within manageable levels. CPI inflation stood at 4.1% year-on-year in July 2025, compared to 3.2% in June and 11.1% in July of the previous year. On a monthly basis, inflation recorded an increase of 2.9% in July following a 0.2% rise in June. The government expects inflation to remain in the range of 4% to 5% for August, though risks from flood-related damages could put upward pressure on food supplies and fiscal resources.
The fiscal position has also demonstrated remarkable improvement. The fiscal deficit for FY2025 narrowed to 5.4% of GDP from 6.9% in FY2024, marking the lowest level in eight years. At the same time, the primary surplus surged to Rs. 2,719.4 billion, equivalent to 2.4% of GDP, which is the highest in 24 years. These gains were achieved through tight control of non-markup expenditures and an expansion in both tax and non-tax revenues. Tax revenues grew by 26.2%, while non-tax revenues recorded an impressive 65.7% rise.
The FBR’s performance has been particularly noteworthy. In July FY2026, tax collection climbed 14.8% to Rs. 757.4 billion, reflecting continued improvements in compliance and administration. Similarly, external accounts showed progress, with the current account deficit narrowing to $254 million in July 2025, compared to $348 million in the same month last year. Exports grew by 16.2% to $2.7 billion, while imports increased by 11.8% to $5.4 billion.
Agriculture and industry also showed mixed yet positive signals. Agricultural credit disbursement rose by 16.3% in FY2025, reaching Rs. 2,577.3 billion, while imports of agricultural machinery surged by 123.9% in July, suggesting greater mechanization in the sector. On the industrial front, large-scale manufacturing grew by 4.1% year-on-year in June, though it contracted 3.7% compared to the previous month. Over FY2025, overall LSM output declined slightly by 0.74%, in contrast to a 0.78% rise recorded last year.
The Monetary Policy Committee of the State Bank of Pakistan decided on July 30 to keep the policy rate unchanged at 11%. While the committee acknowledged risks of slightly higher inflation due to energy costs, it maintained that the overall economic trajectory remains stable.
Pakistan’s improved macroeconomic stability has also been recognized by global credit rating agencies, which upgraded the country’s sovereign outlook. This endorsement from international financial institutions underscores confidence in the sustainability of the government’s fiscal and external reforms.
As FY2026 unfolds, Pakistan’s economic outlook remains cautiously optimistic. While climate-related risks and global uncertainties persist, the combination of disciplined fiscal management, strong remittances, expanding exports, and a stable external account provides a solid foundation for sustained growth.
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