As Pakistan navigates the first seven months of FY2025, its economic situation reveals a blend of resilience and recalibration. Regional trade tells a tale of modest export gains overshadowed by a hefty import surge, while broader indicators—like tamed inflation, a revitalized stock market, and a promising wheat harvest—hint at a nation finding its stride.

From bustling trade routes with neighbors to homegrown efforts in manufacturing and agriculture, this period offers a snapshot of a country balancing challenges with cautious optimism. This year, the government is determined to keep the fiscal deficit in check, aiming for a tighter grip on finances compared to last year—a clear sign of their dedication to responsible money management. The Ministry of Finance shared some promising numbers: last year, the fiscal deficit hit Rs7.2 trillion, but in the first half of the current year (FY2024-25), it dropped from Rs2.48 trillion to Rs1.537 trillion compared to the same stretch in FY2023-24. What it didn’t mention, though, is how a chunky profit from the State Bank of Pakistan (SBP), recorded between July and September, gave the fiscal picture a noticeable boost.

In its latest monthly update, the ministry emphasized its ongoing efforts to back farmers with programs designed to ramp up agricultural output. It noted that good weather will be key to hitting crop targets, but the Pakistan Meteorological Department (PMD) warns that drier-than-usual conditions could put stress on Rabi crops like wheat, especially in areas dependent on rainfall.

On a brighter note, the Large-Scale Manufacturing (LSM) sector is showing signs of life again. Growth in this area is expected to get a lift from higher machinery and raw material imports, plus a surge in cement shipments. With inflation cooling off and a more relaxed monetary policy in place, businesses are feeling more optimistic, which should give LSM an extra push. The ministry predicts inflation will hover between 2.0-3.0 percent for now, ticking up slightly to 3.0-4.0 percent by March.

Looking at the first half of FY2025, the government’s smart spending cuts and better revenue collection have paid off, setting the stage for a leaner fiscal deficit than last year while keeping discipline intact. With non-markup expenses under control, the primary surplus—an indicator of financial health excluding interest payments—should see further gains in the months ahead.

On the global front, exports, imports, and workers’ remittances are trending upward. Remittances, in particular, are poised to climb higher thanks to seasonal boosts from holidays like Ramazan, Eid-ul-Fitr, and Eid-ul-Adha. As economic activity picks up, exports and imports are also expected to rise, keeping the current account deficit (CAD) at a manageable level.

However, it’s not all smooth sailing. Pakistan’s trade gap with nine nearby countries ballooned by 40.42% to $6.379 billion in the first seven months of FY2025, up from $4.543 billion the year before. The spike was largely fueled by bigger imports from China, India, and Bangladesh, though exports to Afghanistan, Bangladesh, and Sri Lanka did see some solid gains.

Between July and January, Pakistan’s trade with regional neighbors painted a mixed picture. Total exports to these countries climbed by 5.91%, reaching $2.763 billion, up from $2.609 billion the previous year. Meanwhile, imports took a bigger leap, soaring 27.83% to $9.142 billion from $7.152 billion in the same period of FY24—an imbalance that’s hard to ignore. Breaking it down, China remained a dominant player in Pakistan’s trade story. Exports to China, a hefty chunk of regional trade, slipped 14.36% to $1.478 billion, while imports from the country swelled by 27.99% to $8.907 billion—showing just how much Pakistan leans on Chinese goods. Trade with India ticked upward too, with imports rising 12.21% to $135.35 million, though exports to India stayed tiny at just $0.40 million. Afghanistan, on the other hand, was a bright spot: exports nearly doubled, jumping 94.16% to $556.86 million, while imports lingered at a modest $15.21 million. Bangladesh also saw a boost in trade, fueled partly by political shifts in Dhaka that opened new economic doors. Exports to Bangladesh rose 28.74% to $465.33 million, and imports surged 44.90% to $49.05 million. Sri Lanka followed a quieter trend, with exports up 12.34% to $256.19 million and imports holding steady at $34.55 million. Nepal saw a slight dip in exports to $1.62 million, while the Maldives notched a small gain to $5.53 million.

Zooming out, Pakistan’s economy showed some encouraging signs during these months. Export-driven industries managed to grow despite a sluggish recovery in the Large-Scale Manufacturing (LSM) sector. Inflation took a sharp dive, creating a calmer financial backdrop that let the central bank ease its policy rate bit by bit. The Pakistan Stock Exchange (PSX) reflected growing investor trust with a robust performance, while remittances and foreign direct investment (FDI) flowed in stronger, lifting the mood for future growth.

On the agriculture front, the Rabi season for 2024-25 looks promising so far, with wheat planted across 22.07 million acres and a projected harvest of 27.9 million tonnes. However, recent hailstorm in Punjab could badly affect the crop. The LSM sector had its moment too, bouncing back with a 19.1% month-on-month surge in December 2024 compared to November. Still, the bigger picture was less rosy: year-on-year, LSM shrank by 3.7% in December, a reversal from the 3.1% growth seen a year earlier. Over the July-December stretch of FY2025, LSM contracted by 1.9%, a steeper drop than the 1.0% decline in FY2024’s same period.

Inflation, meanwhile, has been tamed considerably. The Consumer Price Index (CPI) rose just 2.4% year-on-year in January 2025—a stark contrast to the 4.1% in December 2024 and a whopping 28.3% in January 2024. Month-to-month, it crept up by 0.2% in January, barely more than the 0.1% nudge in December and a far cry from the 1.8% jump a year ago. All in all, these threads weave a story of an economy finding its footing, with challenges still in play but glimmers of progress lighting the way.

Pakistan’s journey through July to January of FY2025 reflects an economy at a crossroads—grappling with a widening trade gap yet buoyed by stabilizing forces. While exports to regional partners like Afghanistan and Bangladesh shine, the heavy reliance on imports, especially from China, underscores lingering vulnerabilities. Still, with inflation in check, manufacturing showing flickers of life, and remittances pouring in, there’s a quiet momentum building. The road ahead isn’t without bumps, but these early months suggest Pakistan is carving out a path toward steadier ground, one step at a time.