ISLAMABAD: As flood-related disruptions are poised to rattle Pakistan’s food supply chains, the Finance Division has warned of fresh inflationary pressures, citing looming setbacks for the agriculture sector.
The monthly economic update and outlook for September 2025 noted that due to the 2025 floods, the agriculture sector is expected to suffer. The assessment of Kharif crops and livestock damages is in progress. The government has declared climate and agriculture emergencies nationwide to tackle escalating climatic challenges and support farmers impacted by the severe floods.
The Finance Division noted that flood-related disruptions may exert pressure on food supply chains, leading to an uptick in prices. As a result, inflation is expected to rise temporarily but remain contained within the 3.5–4.5 percent range in September 2025.
Aurangzeb confident inflation will stay in check amid ongoing flood crisis
The outlook states that despite the disruption caused by recent floods, economic activity has remained broadly stable. The rebound in large-scale manufacturing, supported by encouraging trends in cement dispatches, automobile production, and allied industries, indicates strengthening industrial momentum in the months ahead.
The external sector is expected to remain stable, with the current account deficit projected to stay manageable despite higher import demand.
Remittances continue to provide strong support, exports are showing early signs of recovery, and declining global commodity prices may help ease the import bill. It further stated that the economy maintained its trajectory of stabilisation and growth during the first two months of fiscal year 2026, with moderating inflation, strengthening large-scale manufacturing (LSM), and contained fiscal imbalances despite the severe floods since July 2025.
The LSM sector recorded positive growth, led by textiles, automobiles, and cement, while CPI inflation eased in August 2025. LSM registered a significant year-on-year (YoY) growth of 9 percent in July 2025 and 2.6 percent on a month-on-month (MoM) basis.
Credit flow to the private sector registered Rs (-170 billion) during 1st July to 12h September fiscal year 2026 against Rs (-353.7 billion) during 1st July to 13th September fiscal year 2025.
Fiscal consolidation continued, supported by stronger revenue mobilisation and prudent expenditure management, resulting in a primary surplus, while exports, remittances, and an adequate level of foreign exchange reserves provided a cushion to the external sector.
Monetary conditions remained stable, and the stock market sustained its bullish momentum, reflecting investor confidence. Although flood-induced disruptions pose temporary risks to inflation, the overall outlook signals a stable macroeconomic environment, with supportive trends in industry, external inflows, and fiscal management expected to underpin sustainable growth going forward.
The Finance Division’s outlook noted that CPI inflation during July-August fiscal year 2026 stood at 3.5 percent as compared to 10.4 percent last year. In August 2025, it recorded at 3.0 percent on a Year-on-Year basis compared to 4.1 percent in July and 9.6 percent in August 2024. On a MoM basis, it decreased by 0.6 percent in August 2025 as compared to an increase of 2.9 percent in the previous month and 0.4 percent in August 2024.
Fiscal accounts strengthened in fiscal year 2025, with a marked improvement in fiscal discipline, as evidenced by an eight-year low fiscal deficit and a 24-year high primary surplus. Encouragingly, the effective expenditure management created space for higher development spending in fiscal year 2025. These consolidation gains have laid a stronger base for better fiscal management in fiscal year 2026.
Furthermore, building on these gains, the government is committed to further improving the fiscal performance in fiscal year 2026 through effective resource mobilisation and a prudent expenditure management strategy. In July of fiscal year 2026, fiscal performance remained on track. Net federal revenues increased by 7.7 percent to Rs. 440.0 billion, supported by 23.9 percent growth in non-tax revenues and 14.8 percent in tax revenues.
A notable increase in non-tax revenues during July FY2026 is largely attributed to higher receipts from petroleum levy, dividends, and defence. During the July-August fiscal year 2026, FBR’s net collection expanded by 14.1 percent to Rs. 1,661.5 billion. On the expenditure side, July fiscal year 2026 outlays grew by 28.8 percent to Rs. 990.1 billion. Consequently, the fiscal deficit was contained at 0.2 percent of GDP, while the primary surplus improved to Rs. 228.9 billion (0.2percent of GDP) compared to Rs. 107.1 billion (0.1percent of GDP) last year.
The current account posted a deficit of USD 624 million during Jul-Aug FY2026, increasing from USD 430 million recorded last year. Goods exports rose 10.2 percent to USD 5.3 billion, while imports increased 8.8 percent to USD 10.4 billion, resulting in a trade deficit of USD 5.1 billion compared to USD 4.8 billion last year. Remittances were up 7.0 percent to USD 6.4 billion, led by inflows from Saudi Arabia (24.6percent share) and UAE (20.6percent).
Net FDI inflows recorded at USD 364.3 million. Main sources were China (USD 120 million) and Hong Kong (USD 60 million).
Sector-wise, power (USD 156.9 million) and financial services (USD 110.2 million) attracted the most FDI. However, private and public FPI recorded net outflows of USD 74.8 million and USD 11.8 million, respectively. As of September 19, 2025, foreign exchange reserves stood at USD 19.8 billion, including USD 14.4 billion with SBP.
The Monetary Policy Committee (MPC), in its meeting on 15th September 2025, kept the policy rate unchanged at 11 percent. While inflation remains moderate and high-frequency indicators show improvement, the decision reflects caution over the evolving outlook amid ongoing floods. During the 1st July 29th August fiscal year 2026, money supply (M2) contracted by 2.3 percent compared to 2.5 percent last year.
Within M2, Net Foreign Assets increased by Rs. 34.6 billion, while Net Domestic Assets declined by Rs. 990 billion. The government retired Rs. 2,328.2 billion in budgetary borrowing compared to net borrowing of Rs. 733.3 billion last year, and the private sector retired Rs. 214.8 billion.
Pakistan Stock Exchange sustained its bullish trend in August 2025. KSE100 Index climbed 9,227 points during the month to close at 148,617, and market capitalization expanded by Rs. 952 billion to Rs. 17,655 billion.
In August 2025, the Bureau of Emigration & Overseas Employment registered 51,444 workers, an 18.7 percent decrease from 63,285 in July, 2025.
Copyright Business Recorder, 2025