KEY POINTS
- Inflation cools to 3.0% in August 2025, lowest in over a year
- Large-scale manufacturing up 9% YoY in July, cement and auto sectors lead gains
- Primary surplus strengthens as fiscal deficit contained at 0.2% of GDP
- Remittances and exports support external account despite higher imports
ISLAMABAD: Pakistan’s economy has shown resilience at the start of FY2026, with cooling inflation, a rebound in large-scale manufacturing, and continued fiscal discipline offsetting the disruption caused by widespread floods since July.
Gains in cement, automobiles, and textiles signalled industrial momentum, while remittances and exports helped cushion the external account.
According to the Ministry of Finance’s Economic Adviser’s Wing in its September Monthly Economic Update & Outlook, large-scale manufacturing (LSM) registered 9 per cent year-on-year growth in July 2025, with 16 of 22 sectors posting positive output.
Cement dispatches rose 20.9 per cent year-on-year in Jul-Aug to 7.8 million tonnes, while automobile production surged, led by a doubling in car output.
Inflation moderated sharply, with CPI inflation easing to 3.0 per cent year-on-year in August, compared to 9.6 per cent a year earlier and 4.1 per cent in July.
The report highlighted double-digit price increases in education and health, while perishable food prices fell by 21.6 per cent. The Sensitive Price Indicator for the week ending September 25 fell 0.16 per cent, reflecting stability in consumer prices.
On the fiscal side, Pakistan recorded an eight-year low deficit and a 24-year high primary surplus in FY2025, laying the foundation for further improvement in fiscal management. In Jul-Aug FY2026, net federal revenues rose 7.7 per cent to Rs. 440 billion, while FBR’s net collection expanded 14.1 per cent to Rs. 1.66 trillion.
Expenditure in July grew 28.8 per cent to Rs. 990 billion, keeping the fiscal deficit at 0.2 per cent of GDP and the primary surplus at Rs. 228.9 billion, up from Rs. 107.1 billion a year earlier.
The external account remained manageable, although the current account deficit widened to $624 million from $430 million the previous year. Exports grew 10.2 per cent to $5.3 billion, led by knitwear, garments, and bedwear, while imports rose 8.8 per cent to $10.4 billion, with petroleum products and palm oil recording notable increases.
Remittances increased 7 per cent to $6.4 billion, with Saudi Arabia and the UAE accounting for nearly half the inflows. Foreign exchange reserves stood at $19.8 billion as of September 19, including $14.4 billion with the State Bank.
The Monetary Policy Committee kept the policy rate unchanged at 11 per cent in September, citing caution amid ongoing flood-related risks. The money supply contracted 2.3 per cent in Jul-Aug, while the government retired Rs 2.3 trillion in budgetary borrowing.
Meanwhile, the Pakistan Stock Exchange maintained bullish momentum, with the KSE-100 index surging 9,227 points in August to close at 148,617, and market capitalisation rising by Rs 952 billion to Rs 17.65 trillion.
The report also noted that the increased agricultural credit disbursement of Rs. 404.2 billion in Jul-Aug (up 19.5 per cent year-on-year) and higher imports of machinery and fertilisers, though Kharif crop and livestock losses from floods remain under assessment.
On the human development side, the Benazir Income Support Programme and partner organisations expanded training and interest-free loan schemes to support livelihoods.
Globally, Fitch Ratings forecasts world GDP growth at 2.4 per cent in 2025 and 2.3 per cent in 2026, with emerging markets showing stronger momentum. Commodity prices eased in energy and food but remained volatile in fertilisers and precious metals, while global inflation hovered near 4 per cent.
The report highlighted that Pakistan’s export markets in the US, UK, China, and the Eurozone are also nearing or hovering above long-term potential, supporting demand for Pakistani products.
