Pakistan’s economy entered FY2026 on a strong note, supported by stable fiscal and external positions, improved revenues, and sustained reforms, according to the Finance Ministry’s Monthly Update and Outlook report for August 2025. The report highlighted that last year’s gains have created a solid foundation for economic growth while setting an optimistic direction for the coming months.
The ministry stated that government reforms aimed at private-sector led growth, coupled with investment facilitation, falling inflation, and a supportive monetary policy, are expected to strengthen business confidence further. Additionally, global demand recovery, a favorable trade environment, and Pakistan’s recent trade deal with the U.S. are likely to boost exports while remittances continue easing pressure on the current account.
However, the report also warned that flood-related damages could disrupt food supplies and add fiscal pressures in the short term. Despite these challenges, inflation is expected to remain within the manageable range of 4.0 to 5.0 percent in August 2025, supported by policy reforms, administrative measures, and stable prices. Encouragingly, headline inflation was recorded at 4.1 percent in July 2025, compared to 11.1 percent a year earlier.
In addition, the external sector showed positive trends at the beginning of FY2026, with a narrower current account deficit, a stable exchange rate, and higher goods exports. Meanwhile, the Federal Board of Revenue (FBR) reported a strong increase in tax collection, supported by a 14.8 percent rise in July alone, driven by both domestic taxation and customs duties.
The fiscal sector also displayed resilience as FY2025 closed with a narrowed deficit of 5.4 percent of GDP, the lowest in eight years. Moreover, the primary surplus rose to 2.4 percent of GDP, the highest in 24 years, mainly due to strict expenditure control and strong revenue growth. This fiscal space also allowed the government to sharply increase development spending under the federal PSDP.
The report emphasized that rising agricultural credit disbursement, increased imports of modern machinery, and recovery in large-scale manufacturing are strengthening the productive sectors of the economy. With international credit rating agencies upgrading Pakistan’s outlook, the government believes the improved macroeconomic stability will reinforce investor confidence and support sustainable economic growth in FY2026.