Pakistan’s economy has entered the fiscal year 2025-26 with positive momentum, building on gains from the previous year and setting an optimistic outlook for the months ahead, according to the finance ministry’s August update.

The Monthly Update and Outlook for August 2025 highlighted that the economy began FY2026 with encouraging developments driven by sustained improvements in FY2025.

Key factors contributing to this optimistic tone include investment facilitation measures, reforms aimed at promoting private sector growth, easing inflation and an accommodative monetary policy all of which are expected to bolster business confidence.

A favourable global environment increased demand from trading partners and Pakistan’s recent trade agreement with the US are anticipated to enhance exports. Additionally, remittances are expected to mitigate import pressures arising from tariff rationalisation.

However, potential flood related damages pose risks of added fiscal pressures and disruptions to food supplies. Inflation is projected to remain between 4% and 5% in August 2025.

The Consumer Price Index (CPI) inflation was recorded at 4.1% year-on-year July up from 3.2% in June and down from 11.1% om July 2024. Monthly inflation rose by 2.9% in July, following a 0.2% increase in June.

The external sector showed strong performances in July FY2026, remarked by a narrower current account deficit and a stable exchange rate.

The Federal Board of Revenue (FBR) also reported significant tax growth, underscoring stable macroeconomic foundations. International credit rating agencies have upgraded Pakistan’s sovereign outlook in light of these sustained improvements.