Floods could strain Pakistan’s economy and disrupt food supplies, warns finance ministry

The finance ministry on Thursday warned that Pakistan’s economy faces risks from flood-related damages, which may add fiscal pressures and disrupt food supplies in affected areas.

The ministry, in its latest monthly economic outlook, said that Pakistan’s economy entered FY2026 with stable macroeconomic conditions and improved growth prospects, supported by a stronger external and fiscal position.

“On a YoY basis, LSM [large scale manufacturing] has been on a steady recovery since April 2025, peaking in June, and is expected to gain further momentum with improvements in automotive and fertiliser output,” read the report.

The ministry noted that government measures for investment facilitation, along with reforms to support private sector-led growth, easing inflation, and accommodative monetary policy, may further reinforce business confidence.

“A favourable global environment, stronger demand from trading partners, and the recent trade deal of Pakistan with the US are expected to boost exports, while workers’ remittances will help contain trade deficit pressures from tariff rationalisation–driven imports.

“However, flood-related damages may add fiscal pressures and disrupt food supplies in affected areas,” it said.

Pakistan is reeling under unprecedented floods aggravated by India’s deliberate suspension of the Indus Waters Treaty (IWT) and its manipulation of river outflows without sharing timely flood warnings.

Pakistan is already battling monsoon rains in recent weeks, with more than 167,000 people displaced in Punjab, including 40,000 who left voluntarily after flood warnings since August 14.

The official death toll from the country’s floods since the start of the monsoon season in late June stood at 804 on Wednesday, half of them in August.

Meanwhile, the finance ministry projected inflation to “remain within the range of 4-5% in August, 2025”.

Pakistan’s headline inflation clocked in at 4.1% on a year-on-year (YoY) basis in July 2025, a reading higher than that of June 2025, when it had stood at 3.2%, showed Pakistan Bureau of Statistics (PBS) data.