Four important macroeconomic indicators indicate that the healthy signs of improvement continue to show resilience in Pakistan’s economic recovery into the first quarter of FY2025.

According to a report issued by the Finance Division as part of the Economic Update and Outlook, there was a significant growth of 38.8% in remittances from July to September of the current year over the same period last year. In any case, while most of this growth is due to the government decision to stop its previous interventions in the foreign exchange market, the growth rate did slow to 29% during September of the current year versus the same period last year, which possibly indicates that remittance inflows are reaching a peak.

The country also reported a current account surplus, but this was more due to delayed opening of letters of credit rather than on account of wholesome export gains. Important raw material inflows were necessitated by imports that increased by 19.4%. But exports lifted only 8.5%. Such a surge in raw materials has helped bridge the contraction in LSM, which saw a marginal contraction of 0.19% during July-August this year as compared with a contraction of 2.53% in the same period last year. However, LSM activity in August 2025 contracted by 2.65% from a positive 0.21% in August 2024 and indicates some residual bottlenecks.

Federal Board of Revenue collections rose 32.7% in the month of September from the same period last year and 25.5% compared to July-August period on a year-on-year basis. Still, these gains are less than a stride towards the ambitious 40% target agreed with the International Monetary Fund, implying that the government would have to employ extra measures agreed with IMF if there were revenue gaps.

These can exacerbate dependency on indirect taxes, already accounting for about 75-80% of the total tax collected; these again are regressive and affect the poor sections of the population more. The heavy use of indirect taxes is termed by critics one of the factors behind the decline in electricity consumption.

To that end, the tax base expansion is a pretty stern commitment by the government towards meeting its budgeted revenue targets, though how well it would be positioned to achieve them goes a considerable way from being sound. Contrary to the formal cut of 5.5 percentage points in the discount rate, private sector credit continues to decline, with a negative flow of Rs240.9 billion recorded from July 10 to October 11 this year, following a similar shortfall of Rs247.8 billion over the same period last year. This makes the targeted growth of 3.5% that is expected to increase tax revenue look increasingly sterner. And to add to all this, resistance from traders and industrialists has ensured that the FBR initiatives to increase tax compliance remain yet to be enforced.

Consumer price inflation has notably declined to single digits, although that gain is tempered by many other economic indicators. Electricity demand is down 21%, mainly because of higher tariffs, and petroleum levy collections jumped 19.6%, says the Economic Update. Both have reduced the purchasing power of the masses, though poverty remains horribly high at 41%, a percentage shared in general only with Sub-Saharan Africa.

The Update does not quote three key indicators: national debt, although it mentions that interest expenses have declined by 6.3 percent because of the successive reduction in the policy rate. This was enough to bring the fiscal deficit down to 0.7 percent of GDP from 0.8 percent last year.

The energy sector remains a weak point, weighed down by wrong policies that have intensified circular debt to an estimated Rs2.6 trillion. Policies promoting solar energy have diminished the load on the national grid, thereby increasing the tariffs, as capacity payments in general work higher these days. The emphasis on privatization continues despite lessons learned from the experiment of K-Electric experience, which is still needing a tariff equalization subsidy of Rs171 billion this year because of uniform tariffs being charged across the country.

Total current expenditure disclosed only partially: it was up by 3.1% in July-August 2025 to Rs1,635.5bn, from Rs1,585.7bn in the same period last year. However, quite a lot more will have to be done before reforms that actually will matter to place the economy on a sustainable footing appear.

Pakistan policy has recently focused on allowing the budgeted ambitious revenue recovery through policies designed to expand the tax base and reduce inflation. Yet several obstacles remain, such as poor private sector credit take-up and resistance from key industrial players to FBR measures. Even if inflation is reducing and interest expenses are falling with this setback, deeper structural problems in the energy sector, along with high poverty rates, weigh in the deficit on the state of economic recovery.

In the meanwhile, the government pursued policies that contained inflation while reducing fiscal deficits. The business and investment environment continued to pose challenges in Pakistan. Circular debt is an ongoing challenge as is poverty and inability to rise revenue growth. Now, visible change would call for a more sustained and wide-ranging approach to place the economy on a stable growth trajectory.