Pakistan’s inflation expected to stay below 6% as economy maintains stable growth

ISLAMABAD: Pakistan’s inflation in October 2025 is projected to remain within the 5 to 6 percent range, despite temporary price pressures caused by floods and border closures, according to the Finance Division’s Monthly Economic Update and Outlook. The report noted that although food prices have seen slight increases, the overall inflation trend remains stable, supported by effective fiscal and monetary management.

Headline inflation stood at 5.6 percent year-on-year in September, compared to 3 percent in August and 6.9 percent in the same month last year. On a monthly basis, inflation rose by 2 percent after two months of decline, while the quarterly average dropped sharply to 4.2 percent from 9.2 percent a year earlier. The key contributors to inflation were education, health, clothing, and non-perishable food items, while prices of perishable goods eased.

Fiscal indicators show strong turnaround

The Finance Division said Pakistan’s economy remains on track for recovery. Strong performance under the IMF’s Extended Fund Facility and Resilience and Sustainability Facility has boosted investor confidence, while fiscal discipline and increased revenue collection have strengthened macroeconomic stability.

Fiscal indicators showed remarkable improvement during the first quarter of FY2026. Net federal revenues rose 231 percent to Rs3.27 trillion, mainly driven by a 721 percent jump in non-tax revenues, including petroleum levies and State Bank profits. FBR tax collections increased 14 percent, while total spending grew just 7.6 percent. This helped the government achieve a fiscal surplus of Rs1.5 trillion and a primary surplus of Rs2.9 trillion, compared to a Rs648.8 billion deficit last year.

Pakistan’s Credit Default Swap probability has dropped by 2,200 basis points in the past fifteen months, while Sustainable Fitch gave the country’s Sustainable Financing Framework an “Excellent” score for aligning with international green and social financing standards.

External sector and markets remain stable

The external sector remained steady, supported by consistent exports and robust remittance inflows. Exports grew 6.5 percent to $7.9 billion, while imports rose 8.3 percent to $15.4 billion. Remittances climbed 8.4 percent to $9.5 billion, with Saudi Arabia and the UAE contributing nearly half of the total. The current account deficit stood at $594 million in July–September but turned into a $110 million surplus in September.

The Pakistan Stock Exchange also maintained its record-breaking rally, with the KSE-100 Index gaining 16,875 points in September to close at 165,493. Market capitalisation reached Rs19.2 trillion by late October, supported by global credit rating upgrades and optimism surrounding CPEC Phase 2.0 and upcoming privatisation plans.

Despite localised price shocks, the Finance Division said Pakistan’s overall economic outlook remains positive. Continued reform efforts, fiscal consolidation, and stronger investor sentiment are expected to help sustain growth momentum in the coming months.