As Pakistan presented its national budget for FY2025, it did so against a backdrop of cautious optimism, grounded in a year of macroeconomic stabilisation, fiscal prudence, and strategic reforms. The numbers speak for themselves: economic recovery is real, inflation is easing, revenue collections are rising, and investor confidence is returning. The federal budget is a signal that the government is committed to reform, resilience, and inclusive growth.
Macroeconomic stabilisation
Pakistan’s economy has turned a corner. The GDP growth rate modestly improved to 2.7 per cent in FY2025, up from 2.5 per cent last year, reflecting cautious recovery despite global and domestic headwinds. The size of the economy expanded to US$411 billion, while per capita income rose by 9.7 per cent, reaching US$1,824 — a sign that macro-level improvements are beginning to trickle down.
Perhaps the most dramatic development is on the inflation front. In a remarkable turnaround, headline inflation plummeted to 3.5 per cent in May 2025, down from 11.8 per cent a year earlier. April 2025 saw a near-historic low of 0.3 per cent inflation, a feat not witnessed in over six decades. These figures have directly benefited households grappling with rising costs in recent years, and signal the success of tighter monetary and fiscal coordination.
Other critical macroeconomic indicators also showed positive movement:
- The fiscal deficit narrowed to 2.6 per cent of GDP (Jul –Mar FY2025), compared to 3.7 per cent the previous year.
- Pakistan recorded its first fiscal surplus in 24 years, posting 1.7 per cent of GDP in Q1FY2025.
- A strong primary surplus of 3 per cent of GDP (Jul –Mar FY2025) doubled the previous year’s figure.
- The current account balance turned positive, registering a US$1.9 billion surplus compared to a US$1.3 billion deficit last year.
These achievements helped bolster the country’s external position. Pakistan’s foreign exchange reserves increased to US$11.5 billion, and the central bank sharply reduced the policy interest rate from 22 per cent to 11 per cent within a year. This major cut made borrowing cheaper, encouraging businesses to invest, banks to lend more, and overall market activity to accelerate. This policy environment helped push the KSE-100 Index to an all-time high of 121,641 points, with market capitalisation reaching Rs 14.7 trillion, and 65,000 new investors joining the market, marking a 21 per cent expansion in the investor base.
The most dramatic development is on the inflation front. In a remarkable turnaround, headline inflation plummeted to 3.5 per cent in May 2025, down from 11.8 per cent a year earlier. April 2025 saw a near-historic low of 0.3 per cent inflation, a feat not witnessed in over six decades.
The export sector also showed promise, with total exports climbing to US$27.3 billion (+6.8 per cent) and IT exports reaching US$3.1 billion (+21.1 per cent), reaffirming the government’s commitment to digital and knowledge-based economies. Remittances surged to US$31.2 billion, marking a 31 per cent year-on-year growth, with a record inflow of US$4.1 billion in March 2025 alone.
Revenue reforms and fiscal discipline
Central to the budget’s credibility is its focus on revenue mobilisation. The Federal Board of Revenue (FBR) collected Rs 10.23 trillion (Jul–May FY2025), marking a 25.9 per cent increase over the previous year. The tax-to-GDP ratio improved to 8.9 per cent, a substantial gain from 7.7 per cent last year. Simultaneously, non-tax revenues jumped by 68 per cent, providing much-needed fiscal breathing space.
These results indicate better enforcement and digitisation by the FBR and a broader commitment to documentation and economic formalisation. For a country historically plagued by low tax compliance and revenue gaps, this represents a structural shift.
Prudent debt management
Fiscal consolidation is incomplete without responsible debt management. In a bold step, the government bought back Rs 1 trillion in local debt ahead of schedule, a first in the country’s history. There’s also a deliberate shift toward Islamic and long-term debt instruments, reducing reliance on short-term borrowing.
The result: debt-to-GDP ratio declined to 65 per cent, a five-year low, improving Pakistan’s fiscal sustainability outlook.
A budget of stability, not populism
This year’s budget avoids grandiose giveaways and instead focuses on building macroeconomic buffers, strengthening institutions, and enabling sustainable growth. Whether through stabilising inflation, attracting investors, or enhancing fiscal transparency, the government has demonstrated a rare resolve to make tough but necessary decisions.
Pakistan’s economic challenges are far from over. Structural reforms, job creation, and social protection remain key priorities. But the FY2025 budget sets the tone for a new narrative, one of discipline, credibility, and cautious optimism.
If implemented effectively, it may well be remembered not only as a stabilising budget but as a turning point for Pakistan’s economic resurgence.
The writer is a corporate financial specialist.
