- Country’s 3.0% GDP growth reflects fiscal discipline, IMF support, and cautious optimism for recovery
Introduction
Pakistan’s economy has navigated a tumultuous path in recent years, marked by external shocks, domestic imbalances, and the lingering effects of global events such as the COVID-19 pandemic and geopolitical tensions. As of November 2025, the country stands at a pivotal juncture, with signs of stabilization emerging from rigorous fiscal discipline and international support. The fiscal year 2025 (FY2025), spanning July 2024 to June 2025, recorded a GDP growth of 3.0%, a modest yet encouraging rebound from the 2.6% expansion in the previous year. This growth, while below the government’s ambitious targets, reflects resilience amid challenges like adverse weather, inflationary pressures, and structural vulnerabilities.
This article delves into Pakistan’s latest economic performance, focusing on key indicators such as GDP growth, inflation trends, and the impact of International Monetary Fund (IMF) reforms. It examines sector-specific challenges, particularly in agriculture and manufacturing, which are cornerstones of the economy.
Looking ahead, the piece discusses prospects for sustained recovery in FY2026 (July 2025 to June 2026) and outlines policy priorities essential for accelerating growth. Drawing on data from official sources like the Pakistan Economic Survey 2024-25, World Bank reports, and IMF assessments, the analysis aims to provide a comprehensive view of the opportunities and hurdles ahead.
Pakistan’s economic narrative is one of cautious optimism. With a population exceeding 240 million and a GDP of approximately Rs 114,692 billion at current market prices, the country must balance short-term stabilization with long-term structural reforms to achieve inclusive and sustainable development. The 3.0% growth in FY2025, though tempered by flood impacts and global uncertainties, signals a foundation for potential acceleration if reforms are deepened.
Recent Economic Performance
GDP Growth and Macroeconomic Stabilization
In FY2025, Pakistan’s economy achieved a real GDP growth of 3.0%, driven primarily by recoveries in the industrial and services sectors. This marks an improvement from the 2.6% growth in FY2024, attributed to improved business confidence, fiscal tightening, and supportive monetary policies. According to the World Bank, this expansion reflects a rebound in industrial activity and services, even as agriculture underperformed due to weather-related disruptions. However, alternative estimates from the Pakistan Economic Survey peg the growth at 2.68%, highlighting slight discrepancies in provisional data. Per capita income rose to US$1,824, a 9.7% increase, bolstered by a stable exchange rate and enhanced economic activity.
The investment-to-GDP ratio improved to 13.8% from 13.1%, supported by better public and private capital formation, while the savings-to-GDP ratio climbed to 14.1%. These figures underscore a gradual shift toward domestic resource mobilization. On the external front, the current account recorded a surplus of 0.5% of GDP, a turnaround from deficits in prior years, fueled by robust remittances and controlled imports. Remittances surged 31% to US$31.2 billion in the first ten months of FY2025, hitting a record monthly high of US$4.1 billion in March.
Fiscal performance was particularly strong, with a primary surplus of 2.0% of GDP in the first half of FY2025, aligning with IMF targets. The fiscal deficit narrowed to 2.6% of GDP in the first nine months, down from 3.7% the previous year, thanks to revenue growth of 36.7% and controlled expenditures. Foreign exchange reserves climbed to US$16.64 billion by late May 2025, providing a buffer against external shocks.
Inflation Trends
Inflation has been a persistent challenge, but FY2025 witnessed a dramatic decline. The Consumer Price Index (CPI) inflation averaged 4.7% from July to April, a sharp drop from 26.0% in the same period of FY2024. By April 2025, year-on-year inflation plummeted to a historic low of 0.3%, the sixth consecutive month of deceleration. This disinflation was driven by tight monetary policy from the State Bank of Pakistan (SBP), which reduced the policy rate by 1,100 basis points since June 2025 to 11%.
Urban food inflation stood at 1.1%, while rural non-food inflation rose modestly to 8.3%. The Wholesale Price Index increased by just 2.2%, and core inflation moderated to 8.8% in urban areas. Factors contributing to this trend include stabilized global commodity prices, improved domestic supply chains, and fiscal prudence. However, vulnerabilities remain, with potential spikes from energy tariffs or supply disruptions.
IMF Reforms and Their Impact
Pakistan’s engagement with the IMF has been central to its stabilization efforts. In September 2024, the IMF approved a 37-month Extended Fund Facility (EFF) worth US$7 billion, followed by the first review in May 2025, disbursing an additional US$1 billion. Concurrently, a Resilience and Sustainability Facility (RSF) of US$1.4 billion was approved to address climate vulnerabilities.
Key reforms include broadening the tax base, enhancing energy sector viability, and rebuilding reserves.
Fiscal targets were met, with a primary surplus on track for 2.1% of GDP by year-end. Power tariff adjustments reduced circular debt, and agricultural income tax reforms promoted equity. Monetary policy remained data-dependent, supporting disinflation while fostering growth. These measures have improved external conditions, with gross reserves rising to US$10.3 billion by April 2025. However, risks persist from geopolitical tensions and domestic implementation challenges.
Sector-Wise Challenges
Agriculture Sector
Agriculture remains the backbone of Pakistan’s economy, contributing 23.5% to GDP and employing over 37% of the workforce. In FY2025, the sector grew by a mere 0.56%, the lowest in nine years, primarily due to a 6.82% contraction in crops. Livestock, accounting for 63.6% of agricultural value addition, drove growth with a 4.72% expansion, including 3.2% higher milk production and 2.7% in meat. Forestry and fisheries grew by 3.03% and 1.42%, respectively.
Challenges were multifaceted. Adverse weather, including excessive monsoon rains (50.6% above average) and deficits in post-monsoon (-44.9%) and winter rainfall (-39.9%), led to water shortages. Kharif season water availability was 13.1% below average, impacting canal withdrawals. Production declines were stark: cotton (-30.7%), wheat (-8.9%), maize (-15.4%), and sugarcane (-3.9%). Rising input costs—urea prices up 12%, fertilizer offtake down 14.1%—exacerbated issues. Structural problems include outdated practices, limited mechanization, pest outbreaks, and groundwater depletion, with per capita water availability below 1,000 cubic meters.
Government initiatives provided some mitigation. Agricultural credit disbursement rose 15% to Rs 1,880 billion in the first nine months, targeting Rs 2,572 billion annually. Programs like solar tubewells, machinery imports (up 40.5%), and the Special Investment Facilitation Council (SIFC) aimed at modernization. Livestock efforts included vaccination drives and breed improvement under the Agriculture Transformation Plan. Despite these, the sector’s vulnerability to climate change and inefficiency hinders its potential as a growth engine.
Manufacturing Sector
The manufacturing sector, contributing about 13.2% to GDP alongside mining, grew by 1.3% in FY2025, down from 3.0% the previous year. Large-Scale Manufacturing (LSM) contracted by 1.5% in the first nine months but showed a 1.8% year-on-year uptick in March. Positive performers included textiles (2.2%), wearing apparel (7.6%), coke and petroleum (4.5%), pharmaceuticals (2.3%), and automobiles (40%). Small-scale manufacturing and slaughtering offset LSM declines.
Challenges include high energy costs, logistical bottlenecks, and regulatory hurdles, which limit competitiveness. The mining and quarrying sub-sector contracted by 3.4%, improving slightly from -4.0%. Broader industrial growth was 4.77%, but spillover effects to services like wholesale and transport were limited. Energy sector reforms under IMF guidance, such as tariff adjustments, aim to reduce circular debt but have increased production costs.
Government support includes IT exports surging 23.7% to US$2.8 billion, creating a trade surplus. However, the sector’s modest growth reflects structural constraints, with exports declining as a share of GDP from 16% in the 1990s to 10% in 2024. Addressing these through tariff reforms and infrastructure investments is crucial.
Prospects for Sustained Recovery in 2025-26
Looking to FY2026, projections vary but indicate continued modest growth. The World Bank forecasts 3.0% expansion, tempered by recent flood impacts on agriculture. The IMF is more optimistic at 3.6%, assuming sustained reforms and macroeconomic stability. The Asian Development Bank (ADB) aligns with 3.0%, citing improved external positions. Overall, growth is expected to be supported by industrial recovery, services expansion, and remittance inflows, but constrained by tight fiscal policies and climate risks.
Inflation is projected to rise moderately to 7.7% (period average), with end-period at 6.6%. The current account balance may slip to a small deficit, but reserves are expected to reach US$13.9 billion. Unemployment could decline to 7.5% from 8.0%. Medium-term growth is pegged at 5.7%, contingent on reforms.
Floods in 2025 have imposed significant costs, damaging crops and infrastructure, potentially shaving off growth points. However, with IMF support and domestic resilience, recovery could accelerate if exports rebound. Regional outlooks for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) project 3.7% growth in 2026, with moderate inflation. Pakistan’s trajectory hinges on navigating global uncertainties, such as commodity price volatility and geopolitical risks.
Policy Priorities for Growth Acceleration
To sustain recovery and accelerate growth, Pakistan must prioritize a multifaceted reform agenda. First, fiscal consolidation remains key: broadening the tax base, improving administration, and rationalizing expenditures to achieve surpluses and reduce debt (projected at 71.2% of GDP). Divestiture of state-owned enterprises (SOEs) and reducing the state’s economic footprint will free resources for private investment.
Second, export-led growth is imperative. The National Tariff Policy lowers input costs, but complementary measures—like a market-determined exchange rate, improved trade finance, and logistics—are needed. Deeper trade agreements and digital infrastructure can boost IT and emerging sectors.
Third, sector-specific interventions: In agriculture, invest in climate-resilient practices, water efficiency (targeting 30% improvement), and mechanization. For manufacturing, address energy viability through cost reforms and enhance competitiveness via regulations.
Fourth, climate resilience under the RSF: Prioritize disaster response coordination, water pricing, and risk disclosure. Strengthening social safety nets and infrastructure will protect vulnerable populations.
Finally, governance enhancements: Bolster anti-corruption, AML/CFT frameworks, and financial sector vigilance. A balanced mix of revenue and expenditure measures post-floods will maintain stability while fostering inclusive growth.
Last’s word
Pakistan’s 3.0% GDP growth in FY2025 marks a step toward recovery, bolstered by IMF reforms, declining inflation, and fiscal surpluses. However, sector challenges in agriculture and manufacturing underscore the need for structural overhauls. Prospects for FY2026 suggest 3.0-3.6% growth, but realizing higher trajectories requires unwavering commitment to policies promoting exports, resilience, and efficiency. By addressing these priorities, Pakistan can transition from stabilization to sustained, inclusive prosperity, benefiting its vast population and positioning itself as a regional economic force.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at sir.nazir.shaikh@gmail.com