Outlook for LSM may improve gradually in coming months, with recovery expected to be gradual amid continued YoY contraction and recent MoM decline.
ISLAMABAD – The ministry of finance has projected that Pakistan’s inflation rate, which had dropped to 0.3 percent in April, might surge to 3.0 – 4.0 percent in next month (June 2025). CPI inflation dropped to 0.3 percent YoY in April 2025, down from 0.7 percent in March and 17.3 percent in April 2024. “Inflation is projected to remain between 1.5 – 2.0 percent in May, with a possible rise to 3.0 – 4.0 percent by June 2025,” ministry of finance noted in its monthly Economic Update and Outlook May 2025.
It further stated that Pakistan’s economy has been upgraded by Fitch Ratings, acknowledging macroeconomic stabilization in the outgoing fiscal year, supported by improved fiscal performance, current account surplus, and easing inflation. Revenue growth outpaced expenditure, reducing the fiscal deficit and further strengthening the primary surplus. The current account posted a $1.9 billion surplus, with a robust growth in exports and remittances. Inflation declined to a record low, paving the way for a more accommodative monetary policy stance. While LSM activity remained sluggish, the automobile and export-oriented sectors showed encouraging performance. Climate finance initiatives, including the Resilient and Sustainable Facility from the IMF and launching the Green Sukuk, reinforce the path toward inclusive and sustainable growth. During Jul-Mar FY2025, total revenue grew by 36.7 percent to Rs13,367.0 billion, compared to Rs9,780.4 billion last year, led by a 68 percent rise in non-tax revenues which reached Rs4,229.7 billion, mainly driven by SBP profits, petroleum levy, dividends, and surcharges. FBR tax collection also increased by 26.3 percent to Rs9,300.2 billion during Jul-Apr FY2025, up from Rs. 7,361.9 billion last year. Total expenditures rose by 19.4 percent to Rs16,337.0 billion, with current spending increase by 18.3 percent and development expenditures by 32.6 percent. As a result, the fiscal deficit declined to 2.6 percent of GDP (from 3.7%) while the primary surplus improved to Rs3,468.7 billion (3.0% of GDP) from Rs. 1,615.4 billion (1.5%) last year. These outcomes reflect the effectiveness of ongoing fiscal consolidation efforts, contributing to enhanced fiscal discipline and macroeconomic stability.
The external accounts further improved during Jul-Apr FY2025, supported by rising remittances and export growth, despite higher imports. The current account posted a $1.9 billion surplus, reversing a deficit of $1.3 billion last year. Goods exports rose 6.8 percent to $27.3 billion, while imports increased 11.8 percent to $48.6 billion, widening the trade deficit to $21.3 billion from $18.0 billion last year. Remittances reached $31.2 billion, up 30.9 percent from $23.9 billion, with major contributions from Saudi Arabia (24.4% share) and UAE (20.4%).
The Monetary Policy Committee (MPC), on May 5, 2025, reduced the policy rate by 100 basis points to 11 percent, observing a persistent decline in inflation. During July 1st – May 2nd, FY2025, broad money (M2) grew by 4.7 percent, compared to 7.0 percent in the same period last year. Net foreign assets increased to Rs1,210.5 billion (up from Rs590.0 billion), while net domestic assets rose by Rs. 476.2 billion, significantly lower than the Rs. 1,588.3 billion recorded last year. Private sector credit expanded to Rs. 751.5 billion, higher than Rs. 239.9 billion in the corresponding period last year. In April 2025, the KSE 100-index remained under pressure amid geopolitical tensions with India, closing at 111,327 points after losing 6,480 points over the month which has been recovered in May 2025. Market capitalization declined by Rs. 853 billion and closed at Rs. 13,521 billion.
The outlook for LSM may improve gradually in coming months, with recovery expected to be gradual amid continued YoY contraction and recent MoM decline. Nonetheless, improvements in high-frequency indicators – such as rising automobile output, raw material imports, and a more accommodative monetary stance – indicates cautious optimism. Improved weather conditions and increased water availability are likely to support higher crop yields and better farming conditions contributing to overall economic growth. Exports and remittances are expected to maintain their upward trend in the coming months keeping the current account within manageable range.
During the Rabi season 2024-25, wheat was cultivated on 22.07 million acres with an estimated output of 28.98 million tonnes. Farm input utilization showed consistent improvement, supported by government efforts to ensure quality seeds, adequate credit, and availability of the machinery and fertilizers. Agricultural credit disbursement increased by 15.0 percent to Rs1,880.4 billion during Jul-Mar FY2025, moving steadily toward the annual target of Rs2,572.3 billion. Imports of agricultural machinery surged by 10.0 percent to $69.2 million in Jul-Apr FY2025, reflecting rising mechanization. For the Kharif season 2025, availability of Urea and DAP is estimated at 4,012 and 840 thousand tonnes, respectively. Whereas their estimated offtake stands at 3,152 and 796 thousand tonnes, which are 14.6 percent and 24.0 percent higher than last year, respectively.
