Pakistan’s government is sounding the alarm on potential inflation spikes from ongoing floods disrupting supply chains, even as the economy shows promising signs of recovery. According to the Ministry of Finance’s Monthly Economic Update for September 2025, these floods could hit the agriculture sector hard, leading to food shortages and higher prices.
The ministry points out that severe flooding across the country in 2025 threatens crops and livestock, putting pressure on food supply chains. This might cause a short-term jump in inflation, but officials expect it to stay within a manageable 3.5-4.5 percent range for September. Despite the challenges, the overall economy remains steady, with strong rebounds in key areas keeping things on track.
Large-scale manufacturing is a bright spot, growing 9 percent year-on-year in July 2025 and 2.6 percent from the previous month. Sectors like textiles, apparel, cement, automobiles, petroleum products, and pharmaceuticals all saw gains—16 out of 22 categories reported positive trends. This industrial momentum, boosted by rising cement dispatches and auto production, signals better times ahead for Pakistan’s manufacturing sector.
Inflation has cooled significantly too. The Consumer Price Index (CPI) dropped to 3 percent in August 2025, averaging 3.5 percent for July and August— a sharp decline from last year’s 10.4 percent. Fiscal performance also improved, hitting an eight-year low in deficit and a 24-year high in primary surplus. In the first two months of fiscal year 2026 (July-August), tax collections by the Federal Board of Revenue rose 14.1 percent, though spending increased 28.8 percent. The fiscal deficit stayed low at 0.2 percent of GDP, with the primary surplus jumping to PKR 228.9 billion from PKR 107.1 billion a year earlier.
On the external front, Pakistan’s current account deficit widened slightly to USD 624 million in July-August 2025, up from USD 430 million last year, due to higher import demand. But exports climbed 10.2 percent to USD 5.3 billion, while imports grew 8.8 percent to USD 10.4 billion, narrowing the trade gap to USD 5.1 billion. Remittances provided a big boost, surging 7 percent to USD 6.4 billion, led by inflows from Saudi Arabia (24.6 percent share) and the UAE (20.6 percent). Falling global commodity prices should help ease the import bill further.
Foreign direct investment (FDI) dipped 22 percent to USD 364.3 million, and there were some outflows in portfolio investments. Still, foreign exchange reserves hit USD 19.8 billion as of September 19, including USD 14.4 billion held by the State Bank of Pakistan—more than double the USD 9.5 billion from last year.
The economy has held its path toward stabilization and growth in the early months of FY26, despite floods starting in July. Assessments of damage to Kharif crops and livestock are ongoing, and the government has declared climate and agriculture emergencies to aid affected farmers. Monetary policy stays stable, and the stock market’s bullish run reflects growing investor confidence.
While flood disruptions pose temporary risks to Pakistan’s inflation and supply chains, the outlook remains positive, thanks to robust industry growth, steady external inflows like remittances, and solid fiscal management. ()
Stay informed on all the latest news, real-time breaking news updates, and follow all the important headlines in world News on Latest NewsX. Follow us on social media Facebook, Twitter(X), Gettr and subscribe our Youtube Channel.
