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ISLAMABAD: The Finance Division reported that the Pakistan economic outlook continues to strengthen, with inflation projected to stay within 3-4 percent for June 2025. Large Scale Manufacturing (LSM) is also expected to improve in the coming months, driven by positive high-frequency indicators.
In its monthly “Economic Update and Outlook June 2025,” the Division noted LSM posted mixed results in April, growing 2.3 percent year-on-year (YoY) but contracting 3.2 percent month-on-month (MoM). Cumulatively, LSM dropped 1.5 percent during July-April FY25, compared to a slight growth of 0.3 percent last year.
The report highlighted that the economy maintained its growth momentum in FY25, backed by stable macroeconomic fundamentals, prudent fiscal discipline, and a healthier external sector. Real GDP grew by 2.68 percent, inflation steadily declined, the current account posted a $1.81 billion surplus, while the fiscal deficit narrowed and the primary surplus reached 3.2 percent of GDP. Ongoing IMF programs and improved credit ratings enhanced policy credibility and investor sentiment.
The government remains focused on structural reforms including tax harmonization, energy pricing, privatization, and climate initiatives aimed at fostering inclusive, sustainable growth. Rising private sector loans indicate increased production activity and investor trust. Meanwhile, strong remittances and exports are expected to keep the current account surplus intact for FY25.
Inflation, Revenues, and Fiscal Management Show Positive Signs
The report did not mention PSDP releases, but noted that credit flow to the private sector hit Rs676.6 billion during July 1-June 13 FY25, up from Rs323.5 billion last year. In May 2025, YoY CPI inflation dropped to 3.5 percent from 11.8 percent in May 2024, with MoM prices down 0.2 percent after falling 0.8 percent in April.
For the 2025-26 Kharif season, the government set a cotton area target of 2.2 million hectares and 10.18 million bales. Agriculture credit reached Rs2,066.6 billion, up 15.7 percent, moving closer to the Rs2,572.3 billion annual goal.
Revenue growth outpaced spending, reflecting effective consolidation. Net federal receipts rose 44.4 percent to Rs8,124.2 billion from Rs5,627.5 billion, driven by a 68.1 percent jump in non-tax income. Tax collections climbed 25.9 percent to Rs10,233.9 billion from Rs8,125.7 billion, led by a 33.8 percent surge in FED, a 27.0 percent rise in direct taxes, a 26.5 percent increase in sales tax, and a 16.3 percent uptick in customs.
Expenditures rose 18.5 percent to Rs12,948.3 billion, mainly due to a 40.6 percent rise in PSDP spending, with current spending up by 17.8 percent. Consequently, the fiscal deficit narrowed to 3.2 percent of GDP from 4.5 percent, while the primary surplus jumped to Rs3,648.9 billion.
External Sector Strengthens with Remittances and Exports Boost
The Pakistan economic outlook benefited from improved external accounts. The current account showed a $1.8 billion surplus in July-May FY25, reversing a $1.6 billion deficit last year. Goods exports grew 4 percent to $29.7 billion, while imports climbed 11.5 percent to $54.1 billion, widening the trade gap to $24.4 billion. Gains were led by knitwear (14.5 percent), garments (16.4 percent), and bedwear (10.6 percent). Major imports rose in palm oil (26.3 percent) and electrical machinery (13.6 percent), though crude oil fell 1.7 percent.
Service exports rose 8.5 percent to $7.6 billion, while imports climbed 6.6 percent to $10.3 billion, yielding a $2.7 billion deficit. IT exports jumped 18.7 percent to $3.5 billion. Remittances soared 28.8 percent to $34.9 billion, mainly from Saudi Arabia and the UAE. Net FDI totaled $2.0 billion, largely in financial services ($628.9 million), power ($562.8 million), and oil & gas ($265.6 million), despite net portfolio outflows.
As of June 13, 2025, foreign exchange reserves stood at $17.0 billion, with $11.7 billion held by the State Bank. The MPC kept rates at 11 percent in June, citing inflation and external risks. Inflation is forecast between 5-7 percent for FY26.
Meanwhile, broad money (M2) grew 6.3 percent vs. 9.5 percent last year, driven by higher Net Foreign Assets. Private sector credit surged to Rs831.8 billion, more than double last year’s Rs351 billion. In May, the KSE-100 gained 8,365 points to close at 119,691, while PSX market cap grew Rs982 billion to Rs14,503 billion.
Migration also rose, with nearly 60,000 workers registered in May. The Pakistan Poverty Alleviation Fund issued 18,525 interest-free loans worth Rs894 million. BISP spending hit Rs411.56 billion, up 29 percent.
