Islamabad: Pakistan’s macroeconomic indicators have demonstrated signs of overall stabilization, supported by improvements in fiscal performance, a strengthened external account, and decreasing inflation.
Effective revenue mobilization and controlled current spending have contributed to a reduced fiscal deficit and a surplus primary balance.
The current account has posted a higher surplus, driven by growth in remittances and exports, while foreign exchange reserves have improved, and the exchange rate has remained stable, in line with market forces.
Inflation has decreased to its lowest level, providing room for a more accommodative monetary policy in the coming months.
Despite overall weakness in industrial activity, the automobile and export-oriented sub-sectors have shown impressive growth.
Social protection and climate finance initiatives are progressing well, reinforcing the country’s path toward inclusive and sustainable growth.
The outlook for Large-Scale Manufacturing (LSM) is expected to improve gradually in the coming months, despite ongoing year-on-year contraction and a recent month-on-month decline.
However, there are signs of cautious optimism due to improvements in high-frequency indicators, including an uptick in automobile production, rising raw material imports, and a more accommodative monetary policy stance.
Furthermore, favorable weather conditions and improved water availability are anticipated to boost crop yields and create better farming conditions, which will contribute positively to overall economic growth.
Inflation is projected to remain between 1.5% and 2.0% in April, with a potential increase to 3.0% to 4.0% by May 2025.
Exports and remittances are expected to continue their upward trajectory, helping to keep the current account within a manageable range.
Strengthened Policy Support Expected to Spur Growth in Agriculture
During the Rabi season 2024-25, wheat cultivation is projected to cover 22.07 million acres, with an estimated output of 27.9 million tonnes.
The use of farm inputs has steadily improved, bolstered by government initiatives aimed at providing quality seeds, agricultural credit, and ensuring the availability of machinery and fertilizers.
Also Read: UN Report Predicts 3.4% GDP Growth for Pakistan in FY25
Agricultural credit disbursement rose by 15.4 percent to Rs. 1,654.8 billion from July to February FY2025, progressing towards the annual target of Rs. 2,572.3 billion.
Imports of agricultural machinery saw a significant increase of 40.5 percent, reaching $85.9 million during the same period, reflecting a growing trend towards mechanization in farming.
For the Rabi season 2024-25, the availability of Urea and DAP fertilizers rose by 6.5 percent and 4.1 percent, respectively.
However, their offtake declined by 12 percent and 3.3 percent, respectively, despite the increased availability.
Large-Scale Manufacturing (LSM) Recovery Remains Elusive
Large-Scale Manufacturing (LSM) continues to face challenges, with output contracting by 1.9 percent during July-February FY2025, compared to a smaller 0.4 percent decline in the same period last year.
In February, LSM experienced a month-on-month (MoM) drop of 5.9 percent and a year-on-year (YoY) decrease of 3.5 percent.
Despite the overall downturn, 10 out of 22 sectors saw positive growth, including textiles, wearing apparel, and coke & petroleum products.
Read More: Pakistan GDP at 1.73% in Q2 of FY 2024-25
Notably, the automobile sector showed robust growth, driven by a significant increase in the production of cars (up 37.1%), trucks & buses (up 87.3%), and jeeps & pick-ups (up 79.8%).
Meanwhile, cement dispatches during July-March FY2025 reached 33.99 million tonnes, reflecting a slight decline of 1.48 percent compared to the previous year.
Domestic cement sales dropped by 6.6 percent to 27.5 million tonnes, while exports grew by 28.1 percent, reaching 6.53 million tonnes.
Inflation Drops to Multi-Decade Low
Consumer Price Index (CPI) inflation eased to 0.7 percent year-on-year (YoY) in March 2025, significantly lower than the 1.5 percent recorded in February and 20.7 percent in March 2024.
On a month-on-month (MoM) basis, inflation increased by 0.9 percent, following a 0.8 percent decline in February and a 1.7 percent rise in March 2024.
Key contributors to YoY inflation include health (13.8%), clothing and footwear (13.5%), education (11.9%), alcoholic beverages and tobacco (7.4%), restaurants and hotels (6.9%), and household equipment (3.7%). Conversely, significant declines were seen in perishable food items (-30.2%), housing and utilities (-2.2%), transport (-1.2%), and non-perishable food items (-0.1%).
The Sensitive Price Indicator (SPI) for the week ending April 17, 2025, dropped by 0.69 percent, with 18 items showing price decreases.
Fiscal Consolidation on Track
During the period of July-February FY2025, Pakistan’s net revenue receipts grew by 43.3 percent, reaching Rs. 6,780.2 billion.
This growth was primarily driven by a 73 percent increase in non-tax revenues, which amounted to Rs. 3,921.6 billion.
The surge in non-tax revenues was mainly attributed to dividends, profits from Pakistan Telecommunication Authority (PTA) and the post office, profits from the State Bank of Pakistan (SBP), gas surcharges, and petroleum levies.
Additionally, Federal Board of Revenue (FBR) tax collection rose by 25.9 percent to Rs. 8,453.1 billion during July-March FY2025.
Total expenditures increased by 23.2 percent, amounting to Rs. 10,359.0 billion.
Current spending was up by 17.2 percent, reaching Rs. 9,563.7 billion, with markup payments rising by 18.2 percent and non-markup expenditures increasing by 15.7 percent. Development spending saw a substantial rise of 50.3 percent.
Read More: IMF Reduces Pakistan GDP Growth Projection to 2.6%
These fiscal developments contributed to a reduction in the fiscal deficit to 2.2 percent of GDP, down from 3.1 percent.
The primary surplus improved to Rs. 3,452.1 billion, or 3.0 percent of GDP, from Rs. 1,834.0 billion, or 1.7 percent.
These results highlight the positive impact of enhanced revenue mobilization and prudent spending, which are expected to help keep the fiscal deficit within manageable limits, supporting long-term fiscal and debt sustainability.
External Account Continues to Strengthen
Pakistan’s external account showed significant improvement during the period of July-March FY2025, driven by rising remittances and export growth, despite an increase in imports.
The current account registered a surplus of $1.9 billion, reversing the previous year’s deficit of $1.7 billion. Goods exports grew by 7.7 percent to $24.7 billion, while imports rose by 11.1 percent to $43.4 billion, leading to a widened trade deficit of $18.7 billion, up from $16.2 billion in the previous year.
Key export categories such as knitwear (up 16.8%), garments (up 19.1%), and bedwear (up 13.7%) experienced strong growth.
On the import side, increases were observed in palm oil (23.4%), electrical machinery (15.7%), and crude oil (0.4%).
Service exports grew by 9.7 percent to $6.2 billion, while service imports rose by 8.7 percent to $8.6 billion, resulting in a service trade deficit of $2.3 billion.
Notably, IT exports surged by 23.7 percent, reaching $2.8 billion.
Remittances increased by 33.2 percent to $28.0 billion, up from $21.0 billion, with the largest contributions from Saudi Arabia (24.6% share) and the UAE (20.4%).
Net Foreign Direct Investment (FDI) grew by 14 percent to $1.6 billion, largely from China ($684.5 million), the UK ($186.3 million), and Hong Kong ($175.9 million).
Also Read: World Bank Slashes Growth Projections for Pakistan @2.7%
Key sectors attracting FDI included financial services ($518.4 million), power ($500.3 million), and oil & gas exploration ($216.9 million).
However, both private and public Foreign Portfolio Investment (FPI) saw net outflows of $268.9 million and $73.5 million, respectively.
As of April 11, 2025, foreign exchange reserves stood at $15.7 billion, including $10.6 billion held by the State Bank of Pakistan (SBP).
