Unlocking prosperity — strategies for productivity & growth

Despite facing significant headwinds and grappling with structural and external challenges, Pakistan’s economy has shown resilience in key areas. As we step into 2025, it is essential to evaluate the country’s economic performance in 2024 and its implications for the future. Key macroeconomic indicators have improved, as demonstrated by a prolonged decrease in CPI inflation, stable food prices, effective fiscal measures that resulted in a fiscal surplus, and a current account surplus driven by increased exports and remittances. An accommodative monetary policy has increased corporate and consumer confidence, as seen by strong private sector credit growth and a significant increase in the Pakistan Stock Exchange. Strategic reforms and prudent fiscal management are laying the foundation for long-term economic growth.

Exports during July-December FY2025 rose by 10.52 percent to $16.561 billion, while imports grew by 6-11 percent to $27.733 billion. For the first half of the fiscal year 2024-25 (July-December), the trade deficit stood at $11.17 billion, up by a marginal 0.18 percent YoY compared to the same period last year. Large-Scale Manufacturing (LSM) showed gradual recovery in 2024. During July-December 2024, LSM was reported at around 1-2%, which is relatively modest compared to previous years. This represents a slower pace of growth compared to earlier years, highlighting persistent challenges within the industrial sector.

The agriculture sector recorded modest growth in 2024. Favorable weather conditions supported bumper wheat and rice crops. However, water scarcity, outdated farming practices, and rising input costs constrained overall productivity. Government initiatives to promote climate-resilient crops and modern irrigation methods made limited but encouraging progress. The government intends to produce 27.92 million tonnes of wheat across 9.262 million hectares during the Rabi 2024-25 season. To achieve this goal, efforts are being made to ensure timely access to vital farm inputs such as credit, quality seeds, fertilizer, and mechanization help. Agriculture loan disbursement increased by 8.5% from July to November FY2025 to Rs. 925.7 billion, up from Rs. 853.0 billion in the same period in FY2024, indicating progress toward the annual objective of Rs. 2,572.3 billion. Imports of agricultural gear rose 42.3% to $45.3 million, highlighting the push for mechanization and increased production.

CPI inflation fell to 4.9% year on year (YoY) in November 2024, down significantly from 7.2% in October 2024 and 29.2% in November 2023. On a month-on-month (MoM) basis, CPI climbed by 0.5% in November 2024, up from 1.2% in October and 2.7% in November 2023, indicating continued price stability. The Sensitive Price Index (SPI) increased by 0.38% in the week ending December 19, 2024, compared to the previous week. During this time, 13 goods' prices fell, 23 items were stable, and 15 items witnessed an increase.

The economic performance of Pakistan in 2024 highlights both resilience and challenges across sectors, it also offered lessons and opportunities for improvement. While the agriculture sector and exports showed encouraging signs, high inflation and manufacturing constraints remain critical issues. Moving into 2025, targeted reforms, diversification, and policy stability will be essential for sustainable economic growth.

Outlook for Sustained Economic Growth: Pakistan today faces formidable social, economic, security and governance challenges. Many nations have faced similar challenges in history and successfully turned them into opportunities through sound economic planning, good governance and consistency in policy implementation. We believe that, once effectively addressed, our challenges likewise offer unprecedented opportunities for transformational progress. As we pass through an era of unprecedented change and complexity, it is imperative that we refresh our framework for national development. A renewed commitment to the founding vision is needed, both to address the current challenges and set out realistic and ambitious targets for the future—including ensuring that Pakistan succeeds in achieving the proposed Sustainable Development Goals.

To meet FY2025 goals and maintain economic momentum, the government should prioritize support for farmers to help achieve crop production targets. However, challenges remain, particularly in rain-fed agricultural areas, where below-normal rainfall could lead to water stress during critical growth stages of Rabi crops like wheat and barley. On the industrial side, despite some sectors facing ongoing difficulties, the resilience of the economy is evident in the strong performance of key high-weighted industries that bolstered large-scale manufacturing (LSM)

Pakistan’s economy is expected to register ‘modest expansion’ with growth projected at 3.4% in 2025 and increasing to 4.2% by 2026. Modest expansion in economic activity is projected for Pakistan, with GDP expected to increase by 3.4%,” in 2025, the economy “continues to recover from the downturn during the period 2022–2023. According to a UN report, the near-term economic outlook for South Asia is expected to remain robust. After increasing by 5.9% in 2024, regional GDP is projected to expand by 5.7% in 2025 and 6% in 2026, supported by strong economic growth in India and recovery in other economies, including Bhutan, Nepal, Pakistan, and Sri Lanka. However, risks to the outlook are tilted to the downside owing to the possible escalation of geopolitical tensions, deceleration in external demand, ongoing debt challenges, and social unrest. In addition, as the region is highly vulnerable to the impact of climate hazards, extreme weather events pose a significant risk. The world economic growth to remain at 2.8pc in 2025. Easing inflationary pressures across the region have enabled most central banks including the State Bank of Pakistan (SBP) to halt monetary tightening or continue cutting policy rates in 2024. Interest payments have risen significantly since the pandemic—particularly in countries already facing high-interest burdens, such as Pakistan. This trend can be attributed to a combination of factors, including increased debt levels and low government revenues.

The Extended Fund Facility aims to support the efforts of Pakistan to address structural challenges, restore economic stability, and foster sustainable growth. State-owned enterprises and building climate resilience. Key priorities include rebuilding policy credibility, advancing reforms to boost competitiveness, reforming. The inflation rate is expected to remain in double-digits i.e. 10.1% in 2025, which is projected to decelerate to 8.3% in 2026.Meanwhile, average consumer price inflation for South Asia is projected to fall from an estimated 9.9% in 2024 to 8.3% in 2025 and 7.2% in 2026. Pakistan’s export markets, including the US, UK, Eurozone, and China, have shown improving economic momentum, as indicated by their Composite Leading Indicators (CLI). This upward trend bodes well for Pakistan’s exports, which are expected to gain traction in the coming months. However, the incoming US administration's policy shifts in trade, fiscal, and immigration matters could pose challenges, potentially slowing growth and raising inflation in the region.

Pakistan’s export markets, including the US, UK, Eurozone, and China, have shown improving economic momentum, as indicated by their Composite Leading Indicators (CLI). This upward trend bodes well for Pakistan’s exports, which are expected to gain traction in the coming months. Having taken necessary short-term actions to stabilize the economy, it is logical that the focus shifts towards the medium to long term framework that will bring Pakistan’s economy to its full strength and potential.