ISLAMABAD  -  The ministry of finance has stated that Pakistan’s economic outlook is encouraging, underpinned by stabilizing macroeconomic fundamentals and a gradual recovery of key sectors. “Inflation is expected to stabilize near the long-term average of 7 percent in the coming quarters, fostering conditions conducive to economic activity. This anticipated stability will likely facilitate further reduction in policy rates, lowering borrowing costs for both businesses and consumers,” said ministry in report, ‘State of Pakistan’s Economy Half Yearly Report July-December FY2025’.

Pakistan’s economy demonstrated a continued improvement in H1-FY2025, building upon the stabilization achieved in FY2024, when GDP expanded by 2.5 percent after the previous year’s contraction.The positive momentum was fueled by sound macroeconomic management, effective inflation control measures, and enhanced fiscal and external accounts stability. The economic recovery achieved in FY2024, with GDP growth rate of 2.5 percent against a contraction of 0.2 percent in FY2023, has sustained positive growth of 0.92 percent in the first quarter of FY2025. However, growth has slowed compared to the 2.3 percent recorded last year, reflecting moderation across key sectors, particularly in agriculture.

The disbursement of $1.03 billion under the IMF’s Extended Fund Facility (EFF) has played a critical role in reinforcing fiscal and external stability, boosting investor confidence, and catalyzing economic activity. Additionally, Pakistan’s successful hosting of the 2024 SCO Summit has further bolstered market sentiment and business confidence. Collectively, these developments signal a positive economic outlook for FY2025 and over the medium term. Inflation substantially declined to 7.2 percent in H1-FY2025 from 28.8 percent a year earlier, supported by easing global prices, a stable exchange rate, and targeted government policies. Policy reforms, monetary easing, and fiscal consolidation further strengthened the foundation for sustainable economic momentum.

The agricultural sector grew by 6.2 percent in FY2024, buoyed by increased investment, expanded agricultural credit, and favourable weather conditions. High-frequency indicators, including machinery, investment and water availability, suggest a positive outlook for future growth in the sector. The industrial sector exhibited mixed results; like textile sector is improving gradually. The services sector is projected to continue its positive trajectory, driven by the recovery of domestic activity and growth in trade. The current account balance posted a surplus of $1.21 billion in Jul-Dec FY2025. Record-high remittance inflows and strong export performance offset the increasing import bill. Foreign Direct Investment (FDI) surged by 20 percent, driven by investments in the power and oil sectors. Foreign exchange reserves are enough to cover over two months of imports, supported by IMF disbursements and international financial assistance. The Pakistani rupee appreciated by 1.2 percent, indicative of favorable external developments.

The government has been able to reduce the fiscal deficit to 0.04 percent of GDP in Jul Nov FY2025, a marked improvement from the previous year’s deficit. The improvement was bolstered by robust growth in tax and non-tax revenue, reflecting improved fiscal discipline, reduced interest rates, and a stable exchange rate. With strengthened economic fundamentals, declining inflation, and growing investors’ confidence, Pakistan is well-positioned for continued growth momentum throughout FY2025. Key policy measures, including monetary easing and export facilitation, are creating an environment conducive to private sector-driven growth. Continued fiscal discipline and improved external account, alongside favorable global trends, are expected to sustain this positive momentum.

Committed to sustainable growth, the government is focused on overcoming structural challenges and promoting inclusive development. In this regard, recently, the government has unveiled its homegrown 5-Year Economic Transformation Plan, URAAN Pakistan. The plan underscores inclusivity through a pragmatic, inclusive, and self-reliant approach to address Pakistan’s economic challenge. The report highlights Pakistan’s resilience and adaptability in the face of a dynamic global and domestic economic landscape. Positive developments in key sectors underscore the impact of targeted reforms, sound fiscal management, and strategic interventions. Effective fiscal consolidation efforts, combined with a prudent debt management strategy, are expected to maintain the downward trajectory of debt to GDP ratio. The external sector has made progress in balancing trade dynamics, with remittances and foreign investments bolstering external accounts. Stable foreign exchange reserves further contribute to economic stability.

Despite facing global challenges, including a moderate recovery in international trade and geopolitical uncertainties, Pakistan’s economy shows promising signs of sustainable growth. The decline in inflationary pressures, easing policy rates, and stable commodity prices have created a favorable environment for investment and private sector-led expansion. However, persistent issues, such as structural imbalances, fiscal rigidity, and high public debt, require continued reform efforts.