Food supplies at risk due to floods: FD warns Pakistan’s economy faces renewed challenges

ISLAMABAD: Pakistan’s economic stability faces renewed challenges as the Finance Division warns that flood-related damages could intensify fiscal pressures and disrupt food supplies across affected areas as well as pose a risk in achieving agriculture sector’s targeted growth.

The monthly economic update and outlook August 2025 noted that adverse climatic events (heavy rainfall and floods) pose a risk in achieving agriculture sector’s targeted growth.

Finance Division stated that inflation is projected to remain within the range of 4-5 percent in August, 2025, compared to 4.1 percent in July 2025.

‘Climate change is posing threat to livestock sector, food security’

Last month the external sector showed a favourable performance, with a narrower current account deficit and a stable exchange rate, while Federal Board of Revenue (FBR)’s tax collection recorded significant growth. These trends highlight a stable macroeconomic foundation at the beginning of fiscal year 2026.

Credit flow to private sector registered Rs (-232.7 billion) during 1st July to 15th August 2025 against Rs (-317.3 billion) during 1stJuly to 16th August 2024.

The outlook noted that Large-Scale Manufacturing (LSM) sector registered a month-on-month (MoM) decline of 3.7 percent, and 4.1 percent increase on year-on-year (YoY) in June 2025.

Cumulatively, LSM output declined by 0.74 percent during fiscal year 2025 compared to a marginal growth of 0.78 percent. On YoY basis, LSM has been on a steady recovery since April 2025, peaking in June, and is expected to gain further momentum with improvements in automotive and fertilizer output, it added.

The outlook further stated that fiscal year 2025 concluded with notable improvement, supported by strong revenue growth and prudent expenditure control. The fiscal deficit narrowed to 5.4 percent of GDP from 6.9 percent in fiscal year 2024, the lowest in eight years.

The primary surplus rose significantly to Rs. 2,719.4 billion (2.4 percent of GDP) from Rs. 952.9 billion (0.9 percent), the highest in 24 years, driven by contained non-mark-up expenditures.

Total expenditure grew by 18 percent to Rs. 24,165.5 billion, with current spending increasing by 15.9 percent to Rs. 21,528.6 billion. This created space for development, as federal Public Sector Development Programm (PSDP) rose sharply by 43.3 percent.

On the revenue front, tax collection grew by 26.2 percent, while non-tax revenues surged by 65.7 percent. In July fiscal year 2026, Federal Board of Revenue’s (FBR) tax collection increased by 14.8 percent to Rs. 757.4 billion, with the 12.5 percent increase in domestic tax and 31.2 percent rise in customs duty.

In July fiscal year 2026, the current account posted a deficit of USD254 million, lower than the USD348 million deficit recorded in July fiscal year 2025. Goods exports increased by 16.2 percent to USD2.7 billion, while imports rose by 11.8 percent to USD5.4 billion, resulting in a trade deficit of USD2.7 billion compared to USD2.5 billion last year.

Service exports grew 18.1 percent to USD745 million; service imports declined 0.7 percent to USD871 million, with service trade deficit of USD126 million compared to $246 million last year.

The net FDI was 6.9 percent higher at USD208.1 million. Main sources were China ($51.4 million), Canada (USD37.8 million) and Hong Kong (USD30.1 million). However, private and public Foreign Portfolio Investment recorded net outflows of $33.8 million and USD10.8 million, respectively. As of August 15, 2025, foreign exchange reserves stood at USD19.6 billion, including USD14.3 billion with State Bank of Pakistan (SBP).

During fiscal year 2025, agricultural credit disbursement rose by 16.3 percent to Rs 2,577.3 billion compared to Rs2,215.7 billion in fiscal year 2024. Imports of agricultural machinery and implements also increased significantly by 123.9 percent, reaching USD14.4 million in July fiscal year 2026.

During the 2025 Kharif season (April-July), urea offtake grew by 2 percent to 1,859 thousand tonnes, while DAP offtake recorded a marginal decline of 0.7 percent to 416 thousand tonnes.

The Monetary Policy Committee (MPC), in its meeting on July 30th, 2025, kept the policy rate unchanged at 11 percent. Despite favourable inflation outcome in June 2025, the Committee observed a slight increase in the inflation outlook in the coming months due to a higher-than-expected adjustment in energy prices, particularly gas tariffs. During 1stJuly - 1st August, money supply (M2) shows negative growth of 4.9 percent compared to negative growth of 3.2 percent last year.

Within M2, Net Foreign Assets (NFA) of the banking system decreased by Rs. 61.8 billion as compared to decrease of Rs. 73.4 billion last year. On the other hand, Net Domestic Assets (NDA) decreased by Rs. 1,940.7 billion as compared to a decrease of Rs. 1,086.0 billion last year.

Under the borrowing for budgetary support, the government has retired Rs. 450.9 billion against the borrowing of Rs. 304.2 billion last year. Private Sector has retired Rs. 222.4 billion as compared to the retirement of Rs. 346.7 billion last year. The Pakistan Stock Exchange (PSX) continued its upward trend, achieving historical high of 150,591 points in 3rdweek of August 2025.

The KSE-100 index gained 13,763 points in July and closed at 139,390 at the end of July 2025. The market capitalization of PSX increased by Rs. 1,464 billion and settling at Rs. 16,703 billion.

In July 2025, the Bureau of Emigration & Overseas Employment registered 63,255 workers, a 23.9 percent increase from 51,072 in June 2025. The Pakistan Poverty Alleviation Fund, in partnership with 26 organizations, disbursed 16,368 interest-free loans worth Rs. 840 million during July 2025. Since 2019, a total of Rs. 119.5 billion has been provided to the borrowers. During fiscal year 2025, Rs. 592.4 billion were spent under the BISP, representing an increase of 27.1 percent compared to last year.

Pakistan’s economy entered fiscal year 2026 with stable macroeconomic conditions and improved growth prospects, supported by a stronger external and fiscal position.

Government measures for investment facilitation along with reforms to support private sector-led growth, easing inflation, and accommodative monetary policy may likely to further reinforce business confidence.

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

Copyright Business Recorder, 2025