- For coming year the direction is right, fundamentals are strengthening and the future looks brighter than before
The year 2025 is proving to be a crucial turning point for Pakistan’s economy. Between January and October, the country managed to move away from the shadows of economic turbulence that dominated the previous two years. While the journey toward full recovery remains incomplete, Pakistan’s economic indicators reveal that the foundation for stability has been laid — and, perhaps for the first time in a decade, the national outlook carries a note of cautious optimism rather than despair.
The sustained government focus on macroeconomic discipline, the revival of an IMF-backed reform program, and gradual improvement in both fiscal and external positions have contributed to a significant shift in sentiment. Markets are calmer, investors are less nervous, and inflation — once a major destabilizing force — has been effectively tamed.
Stabilization and Policy Discipline
The most visible achievement in 2025 has been the remarkable decline in inflation. From a double-digit high in 2023, consumer inflation fell to single digits early in 2025, touching 0.3 % in April — the lowest in nearly ten years. This was not a statistical anomaly but the result of consistent policy tightening by the State Bank of Pakistan (SBP) through most of 2024, followed by a measured relaxation once inflation expectations were anchored. As a result, purchasing power began to recover, and consumer confidence improved across urban and rural areas.
The central bank’s decision to cut policy rates by 100 basis points in January 2025 was seen as a signal that the worst phase of the inflationary cycle had ended. This move, combined with falling global commodity prices and better domestic food supply, eased pressure on both consumers and producers.
On the fiscal side, the government delivered an impressive primary surplus of around 3% of GDP, a notable improvement from the 1.5% recorded a year earlier. This reflected tighter spending control, improved tax administration, and better prioritization of development projects. While challenges remain in broadening the tax base, the government’s efforts to digitize revenue collection and reduce leakages are beginning to bear fruit.
Strengthened External Position
Equally important has been the turnaround in Pakistan’s external account. By the end of October 2025, the current account recorded a surplus of nearly US$2 billion, reversing the persistent deficits that had drained reserves in prior years. Foreign-exchange reserves rose to about US$16.6 billion, up from roughly US$14 billion in mid-2024.
These gains were achieved through a combination of import rationalization, improved remittance flows, and rising non-traditional exports such as IT services and food processing. The reduction in import dependence, particularly for fuel and luxury goods, helped narrow the trade gap without stifling essential industrial inputs. Meanwhile, remittances — exceeding US$22 billion by October — continued to provide a vital cushion for both households and the balance of payments.
The external improvement also reflects better coordination between fiscal and monetary authorities. Policy coherence has helped reassure global lenders, leading to timely disbursements under the IMF’s Extended Fund Facility and Resilience and Sustainability Facility. This renewed confidence has enabled the government to negotiate improved rollover terms for bilateral and multilateral debts, easing repayment pressure for 2026.
Growth Revival
Although overall GDP growth for 2025 remains modest — around 2.7%, as estimated by the IMF — the underlying composition of growth is shifting. Agriculture, supported by timely input supply and favourable weather, has shown resilience after several challenging seasons. Wheat, cotton, and rice output improved slightly, helping stabilize rural incomes.
The industrial sector began to show signs of revival in the third quarter, driven by small-scale manufacturing and construction activity tied to infrastructure projects. Export-oriented industries, particularly textiles and pharmaceuticals, benefitted from improved energy availability and a relatively stable exchange rate.
The services sector — especially information technology, logistics, and retail — remained the leading driver of growth. Pakistan’s expanding digital economy continued to attract global attention, as startups leveraged fintech, e-commerce, and software exports to generate employment and foreign exchange earnings.
Investor and Market Confidence
Perhaps the most encouraging shift during the first ten months of 2025 has been the restoration of market confidence. The Pakistan Stock Exchange gained momentum, foreign portfolio inflows returned gradually, and sovereign risk spreads narrowed on international debt instruments. Investors responded positively to consistent policy messaging and the government’s success in curbing volatility.
The rupee, which had been under severe pressure in prior years, remained largely stable against major currencies throughout 2025. This stability not only supported import-related businesses but also helped temper inflationary expectations.
Brighter 2026
Looking ahead, the outlook for 2026 appears considerably brighter. Both the IMF and World Bank project Pakistan’s GDP growth to rise above 3%, supported by low inflation, improved fiscal space, and recovering investor sentiment. Inflation is expected to remain contained below 5%, giving the central bank further room to ease monetary policy in support of private-sector growth.
The government’s medium-term economic framework, focusing on energy reform, digital infrastructure, and export diversification, could further strengthen the growth base. The expected continuation of the IMF program and the possibility of renewed investment from Gulf and Chinese partners add another layer of optimism.
However, sustaining this progress will require discipline. Structural bottlenecks — low productivity, limited fiscal space, and climate vulnerabilities — continue to pose real risks. Yet, with stability restored, Pakistan now has the breathing space to address these deeper issues through reform rather than crisis management.
If this momentum continues through 2026, Pakistan could finally transition from mere stabilization to a sustained phase of economic expansion. The key lies in maintaining policy consistency, accelerating structural reforms, and empowering private enterprise to take the lead.
After years of uncertainty, Pakistan’s economy is once again finding its rhythm. The direction is right, the fundamentals are strengthening, and for the first time in a long while, the future looks brighter than the recent past.