The Ministry of Finance has cautioned that the devastating floods of 2025 could disrupt supply chains and push inflation higher, even as the economy shows signs of stability in other areas.
“Due to ongoing floods in 2025, the agriculture sector is expected to suffer,” the ministry said in its Monthly Economic Update and Outlook for September 2025.
It went on to say that flood-related disruptions could exert pressure on food supply chains, leading to an uptick in prices with inflation expected to rise but remain contained within the 3.5-4.5 percent range.
Despite widespread floods since July, inflation decreased, large-scale manufacturing improved and fiscal imbalances were kept in control. While damage assessments of Kharif crops and livestock continue, the government has declared climate and agriculture emergencies across the country.
It also highlighted that overall economic activity had stayed the stable in spite of these concerns.
“The rebound in large-scale manufacturing, supported by encouraging trends in cement dispatches, automobile production and allied industries indicates strengthening industrial momentum in the months ahead,” the report said and predicted stability in the external sector.
With exports showing early signs of recovery and remittances offering strong support, the current account deficit is also expected to remain manageable despite increased import demand. Declining global commodity prices could further ease the import bill.
According to the report, the economy maintained its stabilisation and growth trajectory during the first two months of the ongoing fiscal year.
On the fiscal side, the ministry said performance would continue to improve in FY26, following “an eight-year low fiscal deficit and a 24-year high primary surplus”.
Net federal revenues, however, rose by just 7.7percent in July, driven by 23.9percent growth in non-tax revenues and 14.8percent in tax revenues. Non-tax revenues were mainly supported by petroleum levy, dividends and defence receipts.
Between July and August, the FBR’s net collection grew by 14.1percent, while expenditures increased by 28.8percent. As a result, the fiscal deficit was contained at 0.2percent of GDP, and the primary surplus improved to Rs228.9 billion (0.2percent of GDP) compared to Rs107.1billion (0.1percent of GDP) in the same period last year.
The external sector remained under pressure. The current account deficit widened to $624 million in July-August FY26 from $430million a year ago. Exports rose 10.2pc to $5.3bn, while imports increased 8.8percent to $10.4billion, pushing the trade deficit to $5.1billion. Remittances climbed 7percent to $6.4billion, with Saudi Arabia (24.6percent) and the UAE (20.6percent) remaining top contributors.
Net FDI inflows, however, fell 22 percent to $364.3 million. Portfolio investments saw outflows of $74.8m (private) and $11.8m (public). By Sept 19, foreign exchange reserves had improved to $19.8 billion with $14.4 billion held by the State Bank as compared to just $9.5 billion at the same time last year.
According to the ministry, there was significant investor confidence as the stock market maintained its bullish run and monetary conditions remained solid.