Despite mounting concerns over ongoing floods threatening standing crops, the Ministry of Finance’s Monthly Economic Update has revised upwards to 4.2% its economic growth forecast for the current fiscal year against the 3.5% projected in the federal budget.
The cautiously optimistic economic outlook cites ongoing policy reforms, fiscal consolidation, and renewed investor confidence, as Pakistan attempts to balance economic stabilization with climate-related uncertainties.
Inflation
The report forecasts headline inflation to remain between 3.5% and 4.5%, comfortably below the government’s 5% ceiling. However, recent heavy rains and flooding could disrupt agricultural yields and supply chains in the coming months.
The government is also placing renewed emphasis on revenue mobilization, agricultural and industrial modernization, human capital development, and social protection and climate resilience in the ongoing fiscal year. These priorities aim to align short-term fiscal goals with long-term development plans, including climate adaptability and inclusive economic participation.
External sector
Large-Scale Manufacturing continues to perform well, with momentum expected to carry through mid-2025. Increased private sector credit, raw material imports, and value-added exports are contributing to this rebound. The report states that the external sector benefits from strengthened domestic demand, stable exchange rates, steady global commodity prices, and improved foreign demand.
Exports, remittances, and imports in July 2025 are all expected to show growth, reinforcing overall economic stability.
The revised outlook follows a positive close to FY2025, during which projected GDP growth hit 2.68%, inflation dropped to 4.5%, and the current account recorded a $2.1 billion surplus, Pakistan’s first annual surplus in 14 years and its largest in 22 years. The fiscal deficit was also limited to 3.1% of GDP.
These gains have been attributed to improved macroeconomic management, currency stabilization, and a lower policy rate adopted in earlier monetary policy reviews.
Agriculture Sector
After stagnating at just 0.6% growth in FY2025, the agriculture sector is now poised for a modest rebound. Government efforts to improve input delivery are already yielding results, claims the report. It states that agricultural credit surged 16.6% to Rs. 2,300.4 billion, agri-machinery imports rose 20% to $109.6 million, and urea offtake increased 3.4%, while DAP use jumped 20.1%.
These reflect renewed investments in farm productivity, aided by fertilizer availability, seed access, and mechanization support—all critical in a year marked by climate shocks.
While the ministry projects strong fundamentals for FY2026, it warns that environmental risks remain, especially if monsoon flooding intensifies. However, with structural reforms gaining traction, Pakistan appears to be on a recovery path, aiming to transition from stabilization to sustainable, inclusive growth.