Pakistan Economic Insights (July-August 2025)

Pakistan’s economy in the first two months of fiscal year 2025-26 (July-August 2025) displayed a mixed outlook, characterized by cautious confidence following credit rating enhancements but outshined by other noteworthy issues and challenges. Moody’s elevation to Caa1 reflects growth under the IMF program, strengthened by better external cushions and fiscal consolidation. Major segments demonstrate progress: manufacturing, predominantly cement and automobiles, displayed sturdy development, and inflation has toned down meaningfully from the previous year. However, devastating current floods have severely damaged agriculture, threatening major kharif crops like cotton and rice, which poses a grave danger to development, food security, and inflation. As far as the external sector is concerned, the current account glided back into deficit in July due to a surge in imports, whereas remittances showed signs of tapering off. A critical step is the renegotiation of US trade tariffs, which, though decreased from 29% to 19%, remain high. This depicts both a competitive prospect against higher-tariff adversaries, such as India, and a challenge to Pakistan’s cost competitiveness, necessitating calculated policy measures to get the most out of the shifting global trade dynamics.