Pakistan’s economy is facing fresh challenges as severe rainfall and flooding continue to disrupt agriculture, with the government warning of a possible rise in inflation.
According to the Finance Ministry’s Monthly Economic Update and Outlook, the economy began the fiscal year 2025–26 on a positive trajectory, with global rating agencies upgrading Pakistan’s outlook. However, the report cautioned that climate-related losses could undermine agricultural growth targets.
The agriculture sector, which was expected to grow by 4.5 per cent this year, is likely to fall short due to crop damage. Officials noted that disruptions in food supply chains could push prices upwards.
Inflation remained moderate at 4.1 per cent in July but may rise to 5 per cent in August. Despite these concerns, the ministry highlighted stability in the external sector. The current account deficit narrowed, remittances increased by 7.4 per cent to $3.21 billion, and exports jumped by 16.2 per cent to $2.74 billion. Imports, however, also grew by 11.8 per cent to $5.40 billion.
The exchange rate stayed steady at Rs281, while foreign reserves and direct investment improved. The Federal Board of Revenue (FBR) also reported stronger tax collections.
The report pointed out that global market conditions remain favourable, and a new trade agreement with the United States is expected to boost export earnings. Large-scale industries such as automobiles and fertilisers have shown signs of recovery.
Meanwhile, lower interest rates – down from 19.5 per cent to 11 per cent over the past year – are expected to encourage investment. Business activity has also picked up, with company registrations in July rising by 41.6 per cent.
Still, policymakers warned that climate shocks remain the most significant risk to sustainable economic recovery.