Islamabad, August 28, 2025 – Pakistan’s finance ministry has issued a cautionary note, warning that flood-related damages could exert additional fiscal pressures and disrupt essential food supplies in key agricultural zones.
In its August 2025 Monthly Economic Outlook, the ministry highlighted that, while the economy has entered FY2026 with improved macroeconomic stability, unforeseen climatic shocks such as heavy rains and flood events remain significant threats to economic progress.
According to the ministry, Pakistan began FY2026 with a strong external and fiscal position, improved business confidence, and positive growth momentum carried over from FY2025. Large-Scale Manufacturing (LSM) has been recovering since April 2025, with strong performance in automotive and fertilizer production. Exports are also expected to gain from a favorable global trade environment and Pakistan’s recent deal with the United States. Meanwhile, remittances continue to provide critical support in narrowing trade deficits.
Despite these encouraging signs, the ministry underscored that flood impacts could cause localized disruptions, particularly in food supplies, leading to potential upward pressure on inflation. Inflation is projected to remain within the range of 4.0-5.0 percent for August 2025, but the report warns that sustained flood damage could alter this trajectory.
Agriculture, a sector vital to rural livelihoods and food security, saw credit disbursement rise by 16.3 percent in FY2025 to Rs. 2,577.3 billion, while imports of agricultural machinery increased by over 123 percent in July FY2026. However, the ministry noted that adverse weather patterns and flood-related crop losses could challenge these gains, making government support through seeds, fertilizers, and credit even more crucial.
On the industrial side, the LSM sector posted a 4.1 percent year-on-year increase in June 2025, with strong growth in textiles, pharmaceuticals, and automotive production. Cement dispatches rose sharply to 3.997 million tonnes in July FY2026, marking a 30.1 percent increase compared to last year, reflecting a revival in construction and industrial activity.
Fiscal indicators have also improved, with the deficit narrowing to 5.4 percent of GDP in FY2025—the lowest in eight years—while the primary surplus surged to Rs. 2,719.4 billion, the highest in 24 years. Tax revenues grew by 26.2 percent, while non-tax revenues jumped by 65.7 percent. For July FY2026 alone, FBR tax collection reached Rs. 757.4 billion, up 14.8 percent year-on-year.
On the external front, the current account deficit fell to $254 million in July FY2026, down from $348 million last year. Exports rose by 16.2 percent to $2.7 billion, while imports grew by 11.8 percent. Service exports and IT exports also posted strong gains, while remittances increased to $3.2 billion—a 7.4 percent rise—boosted by inflows from Saudi Arabia and the UAE.
The Monetary Policy Committee maintained the policy rate at 11 percent, observing moderate inflation and manageable risks. The Pakistan Stock Exchange continued its upward trend, hitting a historic high of 150,591 points in mid-August 2025, adding Rs. 1,464 billion to market capitalization.
Despite these positive trends, the ministry emphasized that fiscal risks stemming from flood-related rehabilitation costs, agricultural losses, and higher import requirements for food and construction materials could put pressure on the budget in the coming months. While structural reforms, strong revenue performance, and increased foreign inflows provide a cushion, fiscal discipline and contingency planning will be essential to maintain momentum.