Ministry of Finance expressed optimism for sustained growth this year, attributing recovery to International Monetary Fund (IMF)-backed policy reforms, monetary easing, and fiscal consolidation, despite a slowdown in two of the three key real economic sectors—agriculture and industry—which suggests that economic growth may fall short of targets.
In its half-yearly “State of Economy Report,” the Ministry of Finance attributed the contraction in agriculture to a high base effect from the previous fiscal year and reduced crop yields. The production of key crops—cotton, rice, sugarcane, and maize—declined by 29.6%, 1.2%, 2.2%, and 15.6%, respectively, during the first quarter. Cotton’s steep decline particularly impacted overall growth, as wheat production was not a factor during the period.
The industrial sector also recorded negative growth, shrinking by 1.03% in the first quarter, although this was an improvement from the 4.43% contraction in the same period last year.Â
The ministry described this as a gradual recovery in industrial activity. Meanwhile, GDP growth slowed to 0.92% in the first quarter of FY25, compared to 2.3% in the same period last year, reflecting a moderation in key sectors, particularly agriculture.
The report highlighted that inflationary pressures, which peaked in FY23, have eased significantly due to effective policies, declining global commodity prices, and a stable exchange rate. This has allowed the State Bank of Pakistan to reduce its policy rate by 1,000 basis points, stimulating economic activity and providing relief to industrial and consumer sectors.
The external sector showed resilience, with a $1.21 billion current account surplus recorded during July-December FY25. Remittances and exports performed well, while foreign direct investment grew by 20%, particularly in the energy and financial sectors. Foreign exchange reserves now cover over two months of imports, bolstered by IMF disbursements and international financial assistance. The rupee also remained stable against the dollar, reflecting strengthened fiscal management.
On the fiscal front, improved revenue mobilisation—driven by both tax and non-tax revenue—helped reduce the fiscal deficit to 0.04% of GDP in July-November FY25, a significant improvement from the previous year. Record profits from the State Bank of Pakistan, due to its historic 22% policy rate, played a key role in bolstering revenues.
The government noted a positive outlook for agriculture, citing high-frequency indicators such as improved water availability, investment in machinery, and favorable weather trends. The services sector continues to expand, supported by domestic economic activity and trade growth.
The report underlined the government’s commitment to overcoming structural challenges and promoting sustainable and inclusive development. With strengthened economic fundamentals, declining inflation, and rising investor confidence, the government projected continued growth momentum for FY25. It emphasized the role of fiscal discipline, export facilitation, and monetary easing in creating a conducive environment for private sector-led growth.
