By Staff Reporter
ISLAMABAD: Inflation is projected to hold in a range of 10% to 11% in August, as global commodity and energy costs continue to pressure consumer prices even as the country contends with a slump in foreign investment and a deepening contraction in private-sector lending, the Finance Division said.
The assessment, published on Monday in the ministry’s monthly Economic Update & Outlook, flagged geopolitical uncertainty and volatile global energy markets as the primary threats to price stability and the external account in the months ahead. Heavy monsoon rains and flooding present an additional risk to agricultural output and broader economic growth, the ministry said.
Sustaining the current growth trajectory into the 2027 fiscal year will depend on continued fiscal discipline and progress on structural reforms, according to the report, which said such measures are needed to shore up the economy’s resilience to external shocks and protect recent gains in macroeconomic stability.
Investment and Credit Under Strain
Foreign direct investment fell 21% in the first month of the fiscal year, with net inflows dropping to $178.6 million in July from $223.5 million a year earlier. Private-sector credit contracted by 393.4 million rupees in the same month, compared with a 232.1 million rupee contraction a year prior — evidence, according to the ministry, of continued caution among lenders and borrowers alike.
The pullback in credit extended to the broader money supply. Broad money, or M2, contracted by 2,629.5 billion rupees between July 1 and Aug. 14 of the new fiscal year, nearly double the 1,362.0 billion rupee decline recorded over the same period last year. The decline was driven by reductions in both net foreign assets, which fell 260.1 billion rupees, and net domestic assets, which dropped 2,369.4 billion rupees, reflecting a broad tightening across the banking system.
Manufacturing Rebounds, Then Stumbles
Large-scale manufacturing expanded 4.98% in the last fiscal year, reversing a 0.7% contraction the year before, with growth recorded in 16 of 22 sectors. Automobiles, food products, apparel, and coke and petroleum products led the gains.
That momentum reversed sharply in June, when large-scale manufacturing output fell 3.5% from a year earlier and 6.1% from the prior month. The decline was concentrated in apparel, textiles and pharmaceuticals, which together accounted for more than three-quarters of the monthly drop.
Trade Deficit Widens Despite Export Growth
Pakistan’s external accounts showed resilience in July even as the trade gap widened. Combined goods and services exports rose to $3.94 billion from $3.48 billion a year earlier, with goods exports climbing 9.4% to $3.01 billion on gains in petroleum products, cotton yarn and readymade garments.
Imports outpaced that growth, rising to $7.31 billion from $6.46 billion, with goods imports up 13.4% to $6.15 billion on higher machinery, transport equipment and metal purchases. Petroleum imports were a rare decline, falling 5.2%. The result was a wider goods and services trade deficit of $3.37 billion, up from $2.98 billion a year earlier.
Other components of the external account provided a partial offset. The services deficit narrowed to $228 million from $304 million, and the primary income deficit also eased, cushioning the impact of the wider merchandise gap.
Remittances Provide a Buffer
Workers’ remittances rose 13% from a year earlier to $3.6 billion, continuing to serve as a critical support for the balance of payments. Combined with the narrower services and income deficits, the current account deficit shrank to $328 million in July from $529 million a year earlier.
Financial inflows were broadly positive for the month. Gross FDI reached $304.0 million, with net FDI of $178.6 million after outflows. Portfolio investment posted a net inflow of $25.9 million, reversing an outflow in the year-earlier period. Foreign exchange reserves stood at $22.6 billion as of Aug. 21, including $17.1 billion held by the State Bank of Pakistan.
Tax Collection Rises, Government Retires Debt
The Federal Board of Revenue collected 820.9 billion rupees in July, up 8.4% from a year earlier. Direct taxes grew 3.0% and indirect taxes rose 11.9%, with sales tax revenue up 18.3% and federal excise duty up 3.4%. Customs duty collections fell 2.4%.
Government borrowing for budgetary support showed a net retirement of 413.7 billion rupees, compared with a 76.3 billion rupee retirement a year earlier, while private-sector credit similarly recorded a seasonal retirement of 393.4 billion rupees, up from 232.1 billion rupees.
Stocks Slide in July, Then Rally Over 12 Months
The Pakistan Stock Exchange came under pressure in July amid renewed geopolitical tensions, with the KSE-100 Index falling 4,208 points during the month to close at 176,094. Market capitalization declined 442 billion rupees to 19,755.7 billion rupees by month-end.
Measured over a longer horizon, the market has advanced. The KSE-100 was up 20.6% and market capitalization had risen 13.4% as of Aug. 28 compared with the same date in 2025, while new company incorporations climbed 33.8% over the same period.
Agriculture Faces Flood Risk Despite Credit Growth
Imports of agricultural machinery and implements rose 25.9% in July to $18.2 million from $14.4 million a year earlier. Urea offtake during the Kharif season, which runs April through July, reached 2,054 thousand tonnes, up 10.5% from the prior year, while DAP offtake fell 29.9% to 292 thousand tonnes — a decline the ministry attributed to elevated fertilizer prices.
Agricultural credit disbursement climbed 24.7% to 3,231.6 billion rupees in the last fiscal year, from 2,592.2 billion rupees the year before. The government said it remains committed to supporting farmers through access to quality seeds, credit, fertilizer and machinery, though it cautioned that flood risk from the monsoon season threatens the sector’s growth targets.
Social Programs Continue
The Bureau of Emigration & Overseas Employment registered 39,159 Pakistani workers for jobs abroad in July, the ministry said. The Pakistan Poverty Alleviation Fund, working with 24 partner organizations, disbursed 5,778 interest-free loans worth 413 million rupees during the month, bringing cumulative disbursements since 2019 to 126.67 billion rupees. Separately, the Benazir Income Support Programme disbursed 706 billion rupees in the last fiscal year under the government’s social safety net.
The ministry said it expects external sector conditions to remain broadly supportive in the coming months, citing anticipated export growth — particularly in textiles — along with steady remittance inflows and ongoing export facilitation measures as factors that should ease pressure on the balance of payments and support reserve levels.
Copyright © 2021 Independent Pakistan | All rights reserved
