Pakistan's July inflation projected at 3.5-4.5% as rains may disrupt supply chains

ISLAMABAD: The Ministry of Finance’s Monthly Economic Update and Outlook for July 2025 warned on Monday that recent heavy rains could pose risks to agricultural yields and supply chains.

Pakistan’s economy maintained a growth momentum of 2.68%, while inflation sharply declined to 4.5%, supported by a lower policy rate, stable exchange rate, and prudent macroeconomic policies, according to “Monthly Economic Update and Outlook, July 2025, issued by the Ministry of Finance and Revenue.

The Federal Minister of Finance and Revenue stated that Pakistan’s economy has demonstrated clear signs of recovery and growing resilience in the Previous Fiscal Year, 2025.

According to the report, social protection and climate resilience will also remain integral to aligning near-term economic actions with Pakistan’s long-term development goals. The real GDP is expected to grow by 4.2% in FY2026, alongside continued price stabilization.

The report highlights a strong external sector, with the current account posting a $2.1 billion surplus—Pakistan’s first annual surplus in 14 years and the largest in 22 years—driven by improved exports, remittances, and rising foreign exchange reserves.

The fiscal deficit was reduced to 3.1% of GDP during July–May FY2025, reflecting improved fiscal discipline.

Building on this momentum, FY2026 begins with a renewed focus on sustainable and inclusive growth and Policy priorities include continued fiscal consolidation, enhanced revenue mobilization, modernization of the agriculture and industrial sectors, and improvements in the business climate and human capital development, the report said.

According to the data, the Large-Scale Manufacturing (LSM) sector registered a 7.9 percent month-on-month (MoM) growth while a 2.3 percent year-on-year (YoY) increase in May 2025.

The report revealed that the decline in Perishable food prices is moderating Inflation and CPI averages 4.5% for FY2025, a substantial drop from 23.4% during the same period last year.

The CPI inflation recorded at 3.2 percent YoY in June 2025, compared to 12.6 percent in June 2024. MoM, it increases by 0.2 percent, following a 0.2 percent decrease in May 2025.

A key factor behind this moderation is the significant decline in perishable food prices, which fell by 10.6 percent YoY, easing pressure on the overall food basket.

During Jul-May FY2025, the fiscal deficit reduced significantly to 3.7 percent of GDP from 5.0 percent recorded last year.

Similarly, primary surplus increased to 3.1 percent of GDP (Rs.3,594.6 billion) during Jul-May FY2025 from 1.5 percent (Rs.1,620.5 billion) last year due to contained growth in non-markup spending.

On stability in monetary indicators and Capital market optimism, the report said that during July 1 -June 27, FY2025, Pakistan’s broad money supply (M2) grew by 13.7 percent compared to 15.0 percent growth observed last year.

In which, the Net Foreign Assets (NFA) increased sharply by Rs.1,757 billion, compared to Rs.675.2 billion increase recorded in the corresponding period.

Net Domestic Assets (NDA) rose by Rs.3,164.9 billion, compared to Rs.3,976.8 billion last year.

According to the agriculture sector during July–May FY2025, agricultural credit disbursement rose to Rs 2,300.4 billion, marking a 16.6 percent increase from Rs 1,972.8 billion in the same period last year.

The data report also shown optimism for current FY 2025-26 and said that Pakistan’s economy is expected to sustain its recovery in early FY2026, supported by improved macroeconomic fundamentals and rising investor confidence.

Large-Scale Manufacturing (LSM) is likely to maintain momentum in June 2025, driven by increased private sector credit off take and expanding production activity.

The rebound is expected to boost imports of raw materials and intermediate goods while supporting exports of value-added products.

Strengthening domestic demand, a stable exchange rate, steady global commodity prices, and improved foreign demand are likely to enhance exports, remittances, and imports in July 2025, reinforcing external sector stability. Inflation is projected to remain within 3.5 to 4.5 percent, though risks from recent heavy rains may affect agricultural yields and supply chains, the report said.