Pakistan’s economic landscape is buzzing with a mix of cautious optimism and unanswered questions. The government recently slashed its inflation forecast for March to a razor-thin 1%, down from an earlier 3-4% prediction, sparking chatter that prices might even slip below the 1% mark.
This surprising pivot, tucked into the Ministry of Finance’s latest monthly update, comes with a nod to stabilizing food and energy costs. Yet, while the ministry touts fiscal wins like a shrinking deficit and a beefy surplus, the report leaves gaping holes in the story—especially around agriculture and manufacturing, the beating hearts of jobs and growth. With the central bank holding its rate steady and weather worries looming, the road ahead feels like a tightrope walk between promise and peril.
Despite the optimism, the report left many scratching their heads, offering little clarity on the bigger economic picture—especially for agriculture and manufacturing, two vital engines of job growth that remain shrouded in uncertainty. Meanwhile, the central bank decided to keep its policy rate steady at 12%, a move that’s raised eyebrows among independent experts who argue it’s out of touch with the current low inflation trend. The bank defended its stance by pointing to stubbornly high core inflation, cautioning that looming hikes in food and energy costs could spark a rebound in prices down the road. Interestingly, this focus on core inflation marks a shift from three years ago, when the bank pivoted to using headline inflation as its guide for setting rates.
On a brighter note, the finance ministry highlighted how falling food and energy prices have tamed inflationary pressures, paving the way for greater price stability. They credited fiscal discipline—like tightening the budget belt—for delivering a primary surplus and shrinking the fiscal deficit, tangible wins that suggest their strategy is paying off. Yet, the report sidestepped a deep dive into the agriculture and manufacturing sectors, leaving out the detailed outlook many had hoped for after earlier forecasts fell flat. For the 2024-25 Rabi season, the ministry is betting on wheat production hitting 27.9 million tonnes, thanks to farmer-friendly measures like input subsidies, better seeds, and no-interest loans through the Kissan Card program. But they were quick to add a caveat: Mother Nature needs to cooperate for these goals to pan out. That warning feels all the more real with the Pakistan Meteorological Department sounding the alarm about drought-like conditions, especially in Sindh and Balochistan, where rainfall has been scarce compared to last year.
The ministry had once pinned hopes on boosted agricultural output, fueled by more machinery imports and fertilizer use. While DAP fertilizer sales ticked up by 3.8%, urea sales slipped 2% from last season. Last year, wheat harvests hit an impressive 31.4 million metric tonnes, but early buzz in the markets suggests this year’s yield could dip below 27 million—though the ministry stopped short of nailing down a firm number.
As for manufacturing, the picture is just as murky. The finance ministry reported that Large-Scale Manufacturing (LSM) showed flickers of life in January 2025, with some monthly gains hinting at grit. But zoom out to the yearly view, and a decline reveals deeper cracks that could drag on industrial momentum for a while yet. The ministry sounded hopeful about the economy’s prospects, pointing to encouraging signs like a surge in cement sales, a boost in car manufacturing, and growing imports, paired with a more relaxed monetary approach. If demand holds steady, they believe these trends could spark a much-needed rise in production. But there’s a catch—last month, those same high hopes fizzled out when large-scale manufacturing (LSM) shrank by 1.2% compared to the previous year. Looking at the bigger picture, from July to January of fiscal year 2025, LSM took a 1.8% dip overall.
Despite inflation hovering in the low single digits, the government’s spending is still racing ahead at double-digit rates, according to the latest report. Efforts to tighten the fiscal belt seem fleeting—possibly propped up by one-time boosts, like the central bank’s hefty Rs2.5 trillion profit adjustment. On a brighter note, the finance ministry shared that the fiscal deficit slimmed down to 1.7% of GDP over the first seven months of the year, a drop from last year’s 2.6%. Meanwhile, the primary surplus beefed up to Rs3.5 trillion—about 2.8% of GDP.
Federal revenues have been on a tear, climbing 45% to Rs6.3 trillion in those seven months, thanks largely to the central bank’s windfall and juicier petroleum levy hauls. Non-tax revenue? That shot up by an impressive 76%. Spending, though, hasn’t stayed quiet—total expenditures jumped 24% (or Rs1.8 trillion) to Rs9.3 trillion. Day-to-day costs rose 17% to Rs8.6 trillion, with interest payments ticking up 20% and other routine expenses growing by 11.4%. The report credits a big cut in subsidies for keeping non-interest spending in check. The ministry proudly noted that these numbers show their dedication to keeping finances in line—balancing smart revenue collection with careful spending to keep the deficit from ballooning out of control this year.
On the global front, things are looking up. Exports are climbing, remittances are pouring in strong despite rising imports, and the external account is holding its own, the report says. For the first eight months of the fiscal year, the current account boasted a $691 million surplus. February, though, hit a snag with a $12 million deficit—the second month in a row of red ink. Still, remittances have been a lifeline, soaring 33% to $24 billion over those eight months, with Saudi Arabia (25%) and the UAE (20%) leading the pack.
Pakistan’s economy is at a crossroads, teetering between glimmers of progress and stubborn uncertainties. The slashed inflation forecast and a stronger external account—buoyed by export growth and a remittance boom—paint a hopeful picture, while fiscal discipline offers a rare pat on the back for the government. But the lack of clarity on agriculture and manufacturing, coupled with a shaky LSM outlook and drought threats, keeps the mood bittersweet. For now, the ministry’s optimism hinges on fragile threads—steady demand, cooperative weather, and a manufacturing rebound that’s yet to fully ignite. As March fades into April, all eyes will be on whether these green shoots can bloom or if last month’s stumbles signal a tougher climb ahead.