State Bank of Pakistan (SBP) has reduced its FY26 growth outlook, warning that extensive flooding will likely keep real GDP expansion near the lower end of its earlier 3.25%-4.25% forecast. Private sector analysts have revised projections even further, with Topline Securities now expecting growth between 2.75% and -0.25%, down from 3.5%-4.0%, citing widespread agricultural losses and mounting macroeconomic pressures. The forecast revision comes ahead of IMF’s second semi-annual review of Pakistan’s $7 billion Extended Fund Facility (EFF) scheduled for September 25, 2025.
Topline Securities cut agricultural growth expectations to 2.6% from 3.4%, projecting key crops to contract by 2.3%. Rice and cotton are expected to suffer damage of 15% and 10%, respectively, with losses concentrated in Punjab and KPK, while Sindh’s cotton production remains relatively resilient. Arif Habib Limited (AHL) has also lowered its projections, estimating GDP growth decline from 3.46% to 3.17% post-floods. The total cost of the 2025 floods is initially estimated at Rs409 billion ($1.4 billion), or 0.33% of GDP, with agriculture bearing the brunt at Rs302 billion. Losses to transport and communication infrastructure are calculated at Rs97.6 billion, housing at Rs8.95 billion, and livestock at Rs0.5 billion, underscoring the sector’s vulnerability to climate-related shocks.
Current account deficit (CAD) is expected to remain high, with imports projected to grow by 10% compared to the previous 9% forecast, while exports may rise only 1%, down from the earlier 4% expectation. Remittances are revised upward to 6%, or $40.2 billion, reflecting historical patterns during crises. Inflationary pressures have intensified, with wheat and flour prices up 38%-40% and key vegetables surging around 40% in recent weeks. FY26 inflation is now forecast at 6.5%-7.5%, compared with 6%-7% earlier, and food inflation for September alone is expected at 8%-9% month-on-month. Business leaders warn that these agricultural disruptions will ripple across the food value chain, reducing domestic availability and affecting exports of packaged and processed goods, with potential consequences for trade earnings.
Sindh Abadgar Board president Mahmood Nawaz Shah noted that cotton arrivals in Sindh have increased by about 40%, mitigating some losses and positioning the province as a major contributor to the national cotton supply. Rice production is also expected to remain stable, with potential losses capped at 10%, while the upcoming Rabi season will hinge on adequate winter rains to secure wheat production. Topline expects no further monetary easing, projecting the policy rate to bottom at 11% rather than the previously forecast 10%. Fiscal deficit for FY26 is revised to 4.8% of GDP from 4.1%, with revenues projected at Rs13.6 trillion and a primary balance at 1.6% of GDP. Despite pressures, Topline anticipates IMF programme continuity, with external financing needs estimated at $10.5-$11.5 billion and reserves projected above $17 billion by June 2026. Ongoing reforms, including Pakistan International Airline privatisation, circular debt resolution, and investment in mining, offshore drilling, and renewables, are expected to support recovery once immediate flood-related challenges subside.
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