Pakistan’s Economy in July–August: A FY26 Pulse Check

Fiza Nadeem / Sialkot, Punjab, Pakistan

This article about Pakistan’s Economy relies on primary national sources: PBS, SBP, PSX/official dashboards, and international wires/outlets for corroboration and context (Reuters, Dawn, Business Recorder, Pakistan Today, Mettis Global).

Where July-only numbers are published (e.g., CPI, CA, trade, FBR revenues), we report them; where August data are not yet released, we reference market-moving signals (reserves, FX, equities) and policy documents (MPS/MPR, IMF review). 

Quick data dashboard (latest available)

• CPI: 4.1% YoY (Jul-25); ~2.9–3.0% MoM. Reuterspbs.gov.pk
• Policy rate: 11% (MPC Jul 30; MPR Aug-25). State Bank of Pakistan+1
• Current account: –$254m (Jul-25) vs –$348m (Jul-24). Business Recorder
• Trade balance: –$3.18bn (Jul-25, provisional); exports $2.69bn, imports $5.45bn. Mettis GlobalProfit by Pakistan Today
• Remittances: ~$3.2bn (Jul-25) after $3.4bn (Jun-25); FY25 total $38.3bn (record). DawnState Bank of Pakistan
• Reserves: SBP $14.25bn; Total $19.57bn (mid-Aug). USD/PKR ~281–284 late-Aug. State Bank of Pakistan
• FBR revenue: ~Rs755bn (Jul-25), above target (net). Profit by Pakistan Today
• LSM: Jun-25 index 112.95 (↑4.1% YoY, ↓3.7% MoM); FY25 LSM –1.2%. Mettis GlobalBusiness Recorder
• KSE-100: ~148–151k (Aug 18–26 range).

Pakistan’s new fiscal year (FY26) opened with a mix of relief on prices, improved external balances compared to last year, and still-fragile industrial momentum. July figures and August signals provide a useful snapshot of where the economy stands, and where it is heading in the months ahead.

Prices & Monetary Policy

After months of steady disinflation, July brought a reversal. Headline CPI accelerated to 4.1% year-on-year in July 2025, up from 3.2% in June. On a month-to-month basis, prices rose by nearly 3%, mainly due to fuel and food costs as well as adjustments in administered prices.

The Pakistan Bureau of Statistics confirmed this upward shift in its monthly review. In response, the State Bank of Pakistan (SBP) kept the policy rate unchanged at 11% during its July 30 Monetary Policy Committee meeting and reinforced the same stance in its August Monetary Policy Report.

The SBP cited looming energy price pressures and reiterated the importance of maintaining a positive real interest rate within the 5–7% medium-term inflation target.

While inflation remains historically low, the recent uptick is enough to keep policymakers cautious. The growth support from monetary easing is likely to remain limited in the near term.

Pakistan’s Economy in July–August: A FY26 External Sector

On the external front, July started with relatively contained pressures. The current account deficit stood at $254 million, narrower than the $348 million recorded in the same month last year.

Although June had closed with a surplus, July’s deficit reflects seasonal adjustments and rising imports. Exports posted a healthy $2.69 billion (up around 17% year-on-year), while imports hit $5.45 billion, a nearly 29% rise.

Remittances continued to be a vital stabilizer. Workers abroad sent home around $3.2 billion in July, only slightly lower than the Eid-inflated $3.4 billion in June. More importantly, the country closed FY25 with a record $38.3 billion in remittances.

Meanwhile, foreign exchange reserves remain stable. SBP reserves stood at $14.25 billion, while total reserves reached $19.57 billion by mid-August. The rupee also held its ground, trading in the 281–284 per dollar range in late August.

Fiscal Pulse

On the fiscal side, Pakistan began the new year with a positive development. The Federal Board of Revenue (FBR) collected nearly Rs 755 billion in July, slightly exceeding its target after accounting for refunds. The bulk of this came from sales tax and customs duties, although direct taxes lagged behind target levels.

Meeting revenue goals in the very first month of the fiscal year is encouraging, especially given the importance of maintaining momentum for the IMF program. If this trend continues, it will help reduce domestic borrowing needs and support fiscal consolidation.

Real Economy

Industrial performance remains uneven. The latest PBS data showed that Large-Scale Manufacturing (LSM) registered a 4.1% year-on-year increase in June 2025, but on a monthly basis output contracted by 3.7%.

Overall, FY25 closed with a 1.2% contraction in LSM, underscoring how fragile the industrial recovery still is. July data is yet to be released, but the base effect suggests some rebound may be possible.

The private sector’s Purchasing Managers’ Index (PMI), published jointly by HBL and S&P Global, hovered around 50.5 in July, which indicates only marginal expansion. Earlier months showed a slowdown from the highs of late 2024.

These figures highlight that while the industrial sector is stabilizing, it is far from a strong recovery. High energy costs, low demand, and constrained access to finance continue to weigh on industrial growth prospects.

Markets & Financial Conditions

Financial markets, however, remain buoyant. The KSE-100 Index has hovered near record highs, trading between 148,000 and 151,000 points in August. Investor confidence has been supported by relative political stability, strong corporate earnings, and progress on the IMF program.

At the same time, bond yields and money market rates have adjusted to the 11% policy rate environment, while the rupee’s stability has further reinforced sentiment. Overall, financial conditions remain stable and supportive of cautious optimism.

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IMF EFF/RSF Progress and Risks

The IMF continues to serve as the anchor of Pakistan’s macroeconomic program. In May, the Fund completed the first review of the 37-month $7 billion Extended Fund Facility (EFF), releasing about $1 billion in disbursements.

The August Monetary Policy Report highlighted the importance of maintaining reforms to ensure program continuity. However, independent reports have noted slippages in some fiscal and administrative targets.

Successful compliance will determine the flow of multilateral and bilateral financing and shape investor perceptions about the country’s stability.

What July–August Tells Us About Growth?

On the demand side, consumers benefited earlier this year from disinflation, but the July uptick in inflation coupled with expected energy price adjustments may limit a strong rebound in household spending.

Exports are growing, especially in textiles and food products, but faster import growth has widened the goods gap. If imports reflect rising investment demand or inventory building, this could bode well for growth; if not, it risks putting pressure on the external balance.

On the investment and industrial side, manufacturing is stabilizing but remains weak, and the PMI points to tepid business confidence. Although monetary policy is less restrictive than it was a year ago, businesses have not yet translated this into a strong cycle of capital expenditure.

Financial markets, however, are signaling confidence: equity valuations are high, reserves are firmer, and exchange rates stable. Finally, the IMF program continues to act as a stabilizer, though compliance risks could undermine this stability if missed targets are not addressed.

Taken together, the direction is constructive:

Inflation is far lower than the crisis levels of 2023–24.

The current account deficit is smaller year-on-year.

Tax revenues are better than planned, and reserves are stable.

However, growth remains gradual, with the pace of industrial and investment recovery determining whether FY26 will mark a sustained turnaround or just another year of cautious stability.

Risks to Watch (Aug–Sep)

Energy price hikes and tariff adjustments could feed back into inflation and dampen household purchasing power.

A persistent trade gap would stress the external balance unless remittances remain strong.

Above all, compliance with IMF program benchmarks remains critical for uninterrupted external financing.