The State Bank of Pakistan annual report for FY25 paints a mixed picture of Pakistan’s economy. According to the report, the Gross Domestic Product (GDP) grew by 3 percent in 2025 against 2.4 percent the year before, while industrial growth rose by 5.3 percent in 2025 against 0.9 percent in 2024. However, the 3.0 percent growth is lower by .04 percent from earlier estimates by the SBP and the Pakistan Bureau of Statistics (PBS).
There have been significant improvements in the economy which include a steep decline in inflation — from 23.4 percent in 2024 to 4.5 percent last fiscal year — and the policy rate — from 20.5 percent in 2024 to 11 percent in 2025. The overall economic situation markedly improved due to a decline in the policy rate which helped the government in borrowing large sums (1.225 trillion rupees from eight commercial banks) to retire the circular energy debt. There was also an increase in borrowing from multilaterals and bilaterals to strengthen foreign exchange reserves that reached USD 14,506 million by end 2025. Private savings totalled 18 percent of GDP. The report also refers to fiscal consolidation which is a reflection of higher revenue collections in 2025 as compared to last year.
On the negative side, the large-scale manufacturing sector registered negative 0.7 percent in 2025 against 0.9 percent in 2024, while agriculture growth declined to 1.5 percent in 2025 from 6.4 percent in 2024. Further, there was a decline in exports as a percentage of GDP — from 11.1 percent on 2024 to 4.3 percent in 2025, while imports due to administrative measures declined steeply from 0.9 percent in 2024 to 11.2 percent in 2025, accounting for a current account balance of USD 2,113 million in 2025 against negative USD 2,072 million in 2024. Government savings were computed at negative 4.9 percent which accounts for the rising budget deficits.
As far as revenue collection is concerned, the July-June 2025 figure fell short of the target agreed upon with the IMF by 178 billion rupees — with the expected shortfall this year in the first quarter at 198 billion rupees attributed mainly to the flood damage.
The State Bank report qualifies its otherwise optimistic projection with the remark that the outlook is subject to risks emanating from the unfolding impact of floods, and the uncertain geopolitical environment and global trade uncertainties. This conclusion has to be placed in the context of the fact that neither the World Bank (2.6 percent) nor the International Monetary Fund (2.7 percent) has revised their growth estimates for Pakistan for the last fiscal year. It is important to note here that the 2025 floods began in June this year and because the flood damage assessment was not available by end June, this was perhaps not taken into consideration by the authorities but which may have accounted for donor agencies not adjusting the growth rate upward.
One may refer here to the International Monetary Fund’s World Economic Outlook report which has projected Pakistan’s growth rate at 3.6 percent in 2025-26, a downward revision from the budgeted estimate of 4.2 percent. But the report makes it clear that the flood damage has yet to be taken into account. On the other hand, the IMF staff-level agreement has pointed out that the recent floods, which have affected over 7 million people, caused more than 1,000 deaths and severely damaged housing, public infrastructure and agricultural land, have weighed on the economic outlook particularly of the agriculture sector, bringing down the projected FY 26 GDP to about 3.25 to 3.5 percent.
Projections of the growth rate for the current year by the Fund and independent domestic economists range from 2 to 2.5 percent. Based on the 3.6 percent growth assessment by the WEO, the likelihood of an inflation forecast of 6 percent in the current year is therefore also unlikely to be realised.
The Asian Development Bank (ADB) in its latest report warned that the economic stability achieved recently is at risk from emerging internal and external factors. Another report by the World Bank says that poverty has increased by 7 percent over the last three years, reaching 25.3 percent in FY24. The massive damage inflicted by the floods on the livelihoods of millions of people has further exacerbated the situation. The damage to crops, livestock, housing and infrastructure is much larger than the floods of 2022-23. Food prices have seen a massive rise in the post flood period. The Sensitive Price Index reveals that on a year-to-year basis, prices of wheat flour, sugar, tomato and pulse moong have gone up by 18.6 percent, 29.3 percent, 90.1 percent and 15.2 percent, respectively.
The challenging scenario calls for new efforts to revive the economy and generate new employment opportunities. This is important as the latest figures show that almost half of the country’s population is facing economic insecurity. As the long-term trend of poverty is dependent on the trend in food prices, level of per capita income and unemployment, it is essential that the government especially focuses on these areas.