Pakistan’s economy has shown resilience and progress in FY2025, with notable advancements in fiscal management, agricultural support, and external sector performance, as outlined in the Ministry of Finance’s latest economic update. Despite challenges such as flood-related disruptions and a slight uptick in inflation, strategic policy measures and robust revenue growth have laid a strong foundation for FY2026, fostering optimism for sustained economic stability and growth.
The Ministry of Finance has indicated that recent flooding could strain Pakistan’s fiscal resources and disrupt food supply chains in impacted regions, according to its August 2025 Monthly Economic Update and Outlook. The report highlights that inflation, as measured by the Consumer Price Index (CPI), remains well-managed, reflecting effective policy interventions, administrative strategies, and sound economic stewardship that have kept inflationary pressures in check.
In July 2025, headline inflation stood at 4.1% year-on-year (YoY), up from 3.2% in June 2025 but significantly lower than the 11.1% recorded in July 2024. On a month-on-month (MoM) basis, inflation rose by 2.9%, compared to a modest 0.2% increase in June 2025 and a 2.1% rise in July 2024. Looking ahead, the ministry projects inflation to hover between 4.0% and 5.0% in August 2025.
Pakistan’s economy has kicked off Fiscal Year 2025-26 on a strong note, building on the achievements of the previous year and fostering optimism for the future, bolstered by a more robust fiscal and external position. “The national economy has entered FY2026 with encouraging developments, capitalizing on the progress made in FY2025 and laying a solid foundation for sustained growth,” the report noted.
Government initiatives to streamline investment processes, promote private sector-driven growth, ease inflationary pressures, and implement supportive monetary policies are expected to further enhance investor and business confidence. A supportive global economic climate, increased demand from key trading partners, and a newly signed trade agreement with the United States are anticipated to drive export growth. Meanwhile, strong worker remittances are expected to offset pressures on the trade deficit stemming from tariff adjustments that have boosted imports.
In July FY2026, the external sector performed strongly, with a reduced current account deficit and a stable exchange rate. Additionally, the Federal Board of Revenue (FBR) reported notable growth in tax collection.
These developments underscore a stable macroeconomic environment at the start of FY2026, according to the report. The sustained progress in key economic indicators during FY2025, coupled with ongoing reforms, has led international credit rating agencies to upgrade Pakistan’s sovereign credit outlook, reinforcing global confidence in the country’s economic trajectory and the effectiveness of its reform agenda.
Pakistan’s agricultural sector saw robust growth in FY2025, with agricultural credit disbursement rising by 16.3% to Rs2,577.3 billion. Imports of agricultural machinery also soared, increasing by 123.9% to $14.4 million in July FY2026, signaling strong investment in modernizing farming practices.
The Large-Scale Manufacturing (LSM) sector showed mixed results. In June 2025, LSM output grew by 4.1% year-on-year (YoY) but contracted by 3.7% month-on-month (MoM). For the full FY2025, LSM output declined by 0.74%, a reversal from the 0.78% growth recorded in FY2024.
Fiscal performance in FY2025 marked significant progress. Strong revenue collection and disciplined expenditure management reduced the fiscal deficit to 5.4% of GDP, down from 6.9% in FY2024, marking the lowest deficit in eight years. The primary surplus surged to Rs2,719.4 billion (2.4% of GDP), up from Rs952.9 billion (0.9% of GDP), the highest in 24 years, driven by restrained non-markup spending.
Total expenditure in FY2025 increased by 18.0% to Rs24,165.5 billion, with current spending rising by 15.9% to Rs21,528.6 billion. This moderation allowed for a significant 43.3% increase in federal Public Sector Development Program (PSDP) spending, prioritizing development initiatives.
Revenue collection also performed strongly. Tax revenues grew by 26.2%, while non-tax revenues jumped by 65.7%. In July FY2026, the Federal Board of Revenue (FBR) reported a 14.8% increase in tax collection, reaching Rs757.4 billion, with domestic taxes up by 12.5% and customs duties rising by 31.2%.
In the external sector, July FY2026 saw a current account deficit of $254 million, an improvement from the $348 million deficit in July FY2025. Goods exports rose by 16.2% to $2.7 billion, while imports increased by 11.8% to $5.4 billion, leading to a trade deficit of $2.7 billion, slightly higher than the $2.5 billion recorded the previous year.
On July 30, 2025, the Monetary Policy Committee maintained the policy rate at 11%, citing a slightly elevated inflation outlook due to higher-than-anticipated energy price adjustments, despite favorable inflation data in June.
The economic trajectory in FY2025 and early FY2026 reflects Pakistan’s ability to navigate challenges while capitalizing on opportunities for growth. With a reduced fiscal deficit, a record primary surplus, and strong export and revenue performance, the country is well-positioned for continued progress. Supported by prudent policies and a favorable global environment, Pakistan’s economy is poised to maintain its positive momentum in the months ahead despite the devastating floods.