Flood-related damages may add fiscal pressure and disrupt food supply chains in parts of Pakistan, but inflation is expected to remain within a moderate range of 4-5% in August 2025, according to a report released by the Ministry of Finance on Thursday.
The ministry said Pakistan entered fiscal year 2026 with stable macroeconomic conditions and improved growth prospects, building on sustained gains achieved during FY2025. Consumer price inflation remained moderate, supported by prudent economic management, administrative controls, and structural reforms, the report noted.
“The beginning of FY2026 reflects stability in key sectors,” it said, adding the external sector showed improvement in July, with a narrower current account deficit, stable exchange rate, and strong growth in Federal Board of Revenue (FBR) tax collections. These trends, the report said, “highlight a solid macroeconomic foundation,” that helped prompt international credit rating agencies to upgrade Pakistan’s sovereign outlook, reinforcing global confidence in the country’s ongoing economic reforms.
Industry and Manufacturing
The Large-Scale Manufacturing sector, a key driver of industrial output, saw a year-on-year increase of 4.1% in June 2025, though it posted a 3.7% decline month-on-month. Over the full fiscal year FY2025, the sector contracted slightly by 0.74%, compared to 0.78% growth in FY2024.
Out of 22 industrial sectors tracked, 12 showed positive growth, including textiles, apparel, beverages, coke and petroleum products, and pharmaceuticals. The automobile industry saw notable gains in July FY2026, with production of cars up 49%, trucks and buses up 40.1%, and jeeps and pickups up 34%.
Cement dispatches also surged, rising to 3.997 million tons in July FY2026—a 30.1% increase year-on-year. Domestic sales reached 2.988 million tons (up 18.4%), while exports jumped 84.2% to 1.008 million tons, signaling rising industrial activity.
Agriculture and Climate Risks
Pakistan’s agriculture sector also showed resilience. Agricultural credit disbursements rose 16.3% to Rs. 2,577.3 billion in FY2025, compared to Rs. 2,215.7 billion in FY2024. Imports of agricultural machinery increased sharply by 124%, reaching $14.4 million in July FY2026.
During the 2025 Kharif season (April–July), urea offtake rose 2% to 1.859 million tons, while DAP offtake fell slightly by 0.7% to 416,000 tons. The government reiterated its commitment to supporting farmers through improved access to seeds, fertilizers, credit, and machinery. However, the report warned that heavy rainfall and floods could undermine growth targets in the agriculture sector, with risks of food supply disruptions and added fiscal burdens.
Trade and Outlook
The ministry said Pakistan’s recent trade agreement with the United States, along with increased global demand and a favorable external environment, is expected to boost exports. Meanwhile, remittance inflows will help cushion the impact of increased imports due to tariff rationalization.
Efforts to facilitate investment, coupled with reforms supporting private sector growth, easing inflation, and accommodative monetary policy, are projected to further strengthen business confidence, the report said.
Despite climatic uncertainties, the overall outlook remains positive, with the ministry projecting a sustained recovery and growth momentum in key sectors through FY2026.