Lahore: Pakistan’s financial and economic landscape in the first quarter of the fiscal year 2026 (1QFY26), spanning July to September 2025, was characterized by a complex mix of stabilization efforts and emerging challenges. Official data released on November 3, 2025, highlights the country’s economic conditions as it navigates through internal and external pressures.
Inflation trends showed a marked improvement, averaging 4.2% year-on-year during the quarter, a significant drop from the previous year’s figures. However, the month of September witnessed inflation rising to 5.6% from 3.0% in August, primarily due to increased food and energy costs. Despite this uptick, the State Bank of Pakistan (SBP) maintained its policy rate at 11%, reflecting confidence in the overall price stability.
In terms of industrial performance, large-scale manufacturing saw tentative recovery signs, with a notable 8.99% year-on-year increase in July 2025. However, the recovery remains uneven, with demand-driven segments such as automobiles and apparel showing growth, while investment-heavy sectors like machinery and chemicals continued to lag.
The fiscal performance was mixed, with the Federal Board of Revenue collecting Rs 2.86 trillion, falling short by approximately Rs 198-200 billion of the quarterly target. This shortfall underscores challenges in fiscal consolidation amid a soft price environment.
On the external front, the trade balance remained a concern. Exports over July-August 2025 amounted to USD 5.3 billion, against imports of USD 10.4 billion, resulting in a goods deficit of USD 5.1 billion. Crucially, workers’ remittances, totaling USD 6.35 billion, provided a buffer, limiting the current account deficit to USD 624 million. Despite deficits in July and August, foreign exchange reserves were reported at USD 19.8 billion by September, providing a stable buffer against external pressures.
According to information available from the Pakistan Stock Exchange (PSX), market sentiment seemed to improve, buoyed by sovereign rating upgrades and proactive debt management. The quarter saw S&P and Moody’s upgrading Pakistan’s ratings, citing improved external liquidity and fiscal discipline.
In the mutual fund industry, there was a year-to-date growth of 7.81% in assets under management, reaching PKR 4,132 billion. Conventional and Islamic equity funds showed robust growth, influenced by favorable macroeconomic conditions.
The money market remained stable, with the SBP maintaining the policy rate at 11.0%. Government securities auctions reflected strong investor demand, with participation exceeding targets, though the Ministry took a cautious borrowing approach.
Overall, the quarter was defined by low average inflation, resilient remittances, improved sovereign ratings, and proactive debt management. However, notable tax collection shortfalls and a persistent goods deficit highlight underlying economic fragility. The sustainability of recovery depends heavily on continued strength in remittances, narrowing trade imbalances, and attracting private capital inflows.