Abdul Ghani

Pakistan has entered fiscal year 2025-26 (FY26) on a stable footing, with early trends showing moderate inflation, improved external accounts, and stronger fiscal performance, according to the Ministry of Finance’s Monthly Economic Update and Outlook for August 2025, exclusively available with Wealth Pakistan.

The report noted that inflationary pressures have eased compared to the last two years, while exports, remittances, and foreign direct investment all registered growth in July 2025. International credit rating agencies have responded positively, upgrading Pakistan’s sovereign outlook on the back of consistent macroeconomic reforms and stronger external buffers.

The CPI inflation in July was recorded at 4.1% year-on-year, compared to 3.2% in June and a much higher 11.1% in July 2024. The moderation reflects anchored inflationary expectations, helped by policy reforms, administrative controls, and a stable exchange rate. However, a month-on-month increase of 2.9% was observed due to adjustments in energy prices, particularly gas tariffs.

The report reveals that on the external side, the current account deficit narrowed to $254 million in July 2025 from $348 million in the same month last year. Exports rose 16.2% to $2.7 billion, led by strong growth in knitwear, garments, and bedwear. Imports increased 11.8% to $5.4 billion, with petroleum products, crude oil, and palm oil leading the rise.

According to the monthly report, remittances climbed 7.4% to $3.2 billion, mainly from Saudi Arabia and the UAE, which accounted for 25.6% and 20.7% of the inflows respectively. IT exports surged by 23.8% to $354.6 million in July, underlining the sector’s growing contribution to the external account.

Foreign direct investment increased by 6.9% to $208.1 million, driven by inflows into the power and financial services sectors. China and Canada were the largest contributors. As of August 15, 2025, foreign exchange reserves stood at $19.6 billion, of which $14.3 billion were held by the State Bank of Pakistan.

The Finance Ministry report noted that the economic reforms of FY2025 had laid the foundation for continued stability. “The positive trajectory of Pakistan’s economy is expected to continue, provided global conditions remain supportive and domestic risks such as flood-related disruptions are managed,” the report said. The report also cited IMF’s July 2025 World Economic Outlook, according to which global growth is projected to accelerate to 3.1% in 2026.

The JP Morgan Global Composite PMI rose to 52.4 in July, signaling annualized growth of 2.7%. Services expanded, led by banking, insurance, software, and healthcare, while manufacturing slipped back into contraction. The US economy is forecast to grow 1.9% in 2025 and 2% in 2026, supported by tariff reductions and fiscal stimulus.

The global trade is expected to grow 2.6% in 2025, but risks remain from tariffs, policy uncertainty, and geopolitical tensions. Commodity prices showed mixed trends, with energy costs easing slightly while food prices rose.

Credit: INP-WealthPk