KARACHI: The year 2025 brought some relief for the Pakistan economy that finally broke free from a tumultuous period of extreme lows. The economy stabilised after years of crisis, aided by international financing, easing inflation and tighter fiscal controls.
However, growth remained too weak to deliver any meaningful improvement in people’s standard of living or generate enough jobs for a rapidly expanding population.
Gross domestic product (GDP) expanded by about 2.7% in the fiscal year ended June 2025, driven by the remarkable 4.8% rebound in industrial activity. The Pakistan economy also crossed a symbolic threshold, with nominal GDP surpassing $400 billion for the first time.
Despite the improvement, the FY25 growth estimate falls short of the government’s original 3.6% target.
“[Pakistan] achieved some semblance of macroeconomic stability in 2025, but that is not enough for growth,” macroeconomist Ammar Habib Khan shared with The News.
“In order to grow, [the country] needs to move away from a consumption driven to export-oriented growth model and that will require heavy investments in the economy. Without such a change in growth strategy, any kind of sustainable growth is not possible,” he added.
Inflation slowed sharply during the year from multi-decade highs (remained within the State Bank of Pakistan’s (SBP) medium-term target range of 5%-7% during July-November FY26), easing pressure on households and allowing the central bank to signal a more predictable policy stance.
Foreign-exchange reserves recovered from critically low levels with the help of International Monetary Fund programme support and financing from multilateral lenders, including the World Bank, while the current account remained largely in check due to weak import demand and steady worker remittances.
Foreign exchange reserves held by the central bank increased by $16 million to $15.902 billion during the week ending December 19.
Former adviser to finance minister Dr Khaqan Najeeb said that Pakistan’s economy in 2025 “has behaved by the book. The IMF engagement has consolidated macro-stability. Inflation has come down further in the band of 5%-7%.
Current account is in a position where it’s financeable and the fiscal deficit is likely to continue to be lower than the last year’s with the primary surplus achieved in FY25 and the same scenario likely in the coming FY2026.”
However, the deeper indicators like investment to GDP, productivity, savings, high consumption society still continue to cast an overshadow in creating sustainable growth. The first five months of the current financial year from July to November FY26 show a widening of the trade deficit as some stability has led to an increase in imports with large-scale manufacturing slightly up. The overhang of a balance of payments challenge as soon as the economy opens up still is visible.
“2026 hopefully is a year where we can think of rethinking the IMF engagement and using the time and space that has been given to us in 2025 beyond macrostability. The 10th of May victory, our better economic diplomacy, the favourable tariff with the US, talks of CPEC-2 investment, the defence pact with KSA, and favourable Middle East relationships ending up in the $1 billion loan being changed into an investment into Fauji Foundation.
All these provide the time and space for the fundamental and the structural work of the economy which still eludes us after 78 years and will be highly dependent on our ability to identify binding constraints on Pakistan’s growth, prioritising to solve not all, but the most important one, and making that crucial HR transition into making that capability to define a growth strategy for the country.”
A key policy signal in 2025 was the privatisation of Pakistan International Airlines, a long-loss-making state carrier whose sale was closely watched by investors as a test of the government’s commitment to reducing the state’s role in the economy. Authorities also pointed to progress on tax administration, energy pricing and regulatory reforms aimed at narrowing fiscal leakages and improving efficiency.
The stabilisation eased fears of an immediate external financing crisis that had dominated market sentiment in 2023 and early 2024. Yet economists cautioned that the underlying drivers of growth remained fragile.
Uzair Younus, a Washington-based economic analyst, said, “If the goal was achieving economic stability, it was most certainly achieved. PIA’s privatisation also meant that the government passed a key litmus test.”
However, he said, 2026 will be a challenging year as the goal shifts towards achieving sustainable growth. Reforms in the energy sector ought to be the first priority, followed by continuation of the privatisation programme. Finally, a focused approach to improving investor confidence and ease of doing business will be needed.
Pakistan’s sovereign credit outlook improved in 2025 after all three major rating agencies upgraded the country, citing progress under the International Monetary Fund programme and a stronger external position, while warning that risks remain elevated. Moody’s raised Pakistan’s rating to Caa1 from Caa2 in August and assigned a stable outlook, pointing to higher foreign exchange reserves and improved access to external financing. S&P Global Ratings and Fitch Ratings earlier upgraded the country to B- from CCC+.
Despite this, international lenders and rating agencies have repeatedly warned that Pakistan’s growth rate remains too low to lift incomes or absorb new entrants to the labour market, with population growth estimated at more than 2.0% annually.
Gold dominated Pakistan’s asset landscape in 2025, emerging as the best-performing investment as both domestic and international prices posted sharp gains over the year.
In Pakistan, gold delivered an exceptional 73% return in PKR terms, Topline Securities revealed in its report, with prices rising from Rs233,711 per 10 grams at the start of the year to Rs405,402 per 10 grams by late December.
“In the international market, gold prices also increased from $2,612 per ounce on December 31, 2024, to $4,503 per ounce on December 26, 2025,” read the report.
One area of relative strength was the digital economy, with IT and technology-enabled service exports reaching record levels during the year.
The sector posted a record-breaking performance in October 2025, with monthly IT exports reaching an all-time high of $386 million. In FY25, IT exports touched $3.8 billion. Officials have highlighted the sector as a potential engine of export diversification and job creation, supported by a large, young workforce and lower barriers to entry.
Agriculture faced continued pressure from climate-related shocks, including flooding in parts of the country. Government estimates suggested weather disruptions trimmed overall output, reinforcing concerns about Pakistan’s vulnerability to climate risks and their fiscal and social costs.
The SBP cut its key policy interest rate three times in 2025, continuing a broader easing cycle as inflation moderated and external conditions improved.
The Monetary Policy Committee began the year by trimming the policy rate by 100 basis points (bps) to 12% in January. It followed with another 100bps reduction to 11% in May, citing lower inflation and softer demand pressures.
After holding the rate at 11% through a series of meetings amid concerns over flood-driven price pressures and global risks, the SBP delivered a 50bps cut to 10.5% in December, surprising markets that had widely expected a hold.
One surprising element on the economic front was policymakers’ acceptance of cryptocurrencies. Pakistan took significant steps on the cryptocurrency and digital assets front in 2025, moving from a long-standing stance of caution and informal prohibition towards a structured regulatory framework.
Policymakers work on a roadmap to harness blockchain innovation, attract investment and integrate digital finance into the broader economy.
Early in the year, the government formed the Pakistan Crypto Council (PCC) to lead strategic crypto and blockchain initiatives. Despite this, the legal status of cryptocurrencies remained contested. Officials from the State Bank of Pakistan (SBP) and finance ministry repeatedly informed lawmakers that cryptocurrencies were not yet legal and trading remained prohibited under existing regulations.
As part of efforts to formalise digital assets, Pakistan’s central bank moved ahead with plans to pilot a digital currency, aligning with global trends towards central bank digital currencies (CBDCs).
A major legislative push took shape with the Virtual Assets Ordinance 2025, designed to create a licensing and regulatory regime for virtual asset service providers, tokenised platforms and stablecoins — including provisions for a national regulator and digital asset oversight.
The government also explored novel use cases beyond trading. Authorities signed a memorandum with global exchange Binance to investigate tokenisation of up to $2 billion in sovereign assets and invited international blockchain firms to begin licensing processes, signalling openness to private-sector participation.
Looking ahead, economists say that the challenge lies in maintaining stability. Uzair Younus added, “Pakistan has achieved stabilisation many times on the economic front. The challenge has always been sustainable growth and 2026 will be the year where we will know whether this time is any different.”
Originally published in The News
