Lahore: Pakistan’s economy showed visible signs of stabilisation during 2025, with financial experts saying the year marked a clear shift away from crisis management towards relative stability, even though deep-rooted structural challenges continue to cloud the long-term outlook.
“From a macroeconomic perspective, 2025 has been about restoring balance,” said a senior economist. “The pressure on the external account eased, inflation came down sharply and confidence gradually returned to markets, which is a significant change from the previous year.”
Remittances played a central role in supporting the economy. In FY 2024-25, inflows rose to $38.3 billion from $30.3bn a year earlier, an increase of about 26%. Economists say the surge reflected improved exchange rate stability and greater trust of overseas Pakistanis in formal channels. “The scale of remittance growth shows that overseas Pakistanis are once again comfortable sending money through the banking system,” said a financial analyst, adding that the trend remained intact in the current fiscal year, with inflows reaching around $16.1bn during July–November, up more than 9% year-on-year.
Inflation fell sharply, offering relief to households and businesses after a period of severe price pressures. Average inflation declined to about 4.5% in FY 2024-25 from 23.4% in the previous year. “The fall in inflation has been one of the most important developments of the year,” said an economist. “It created space for a major easing of monetary policy.” As a result, the policy rate was reduced from 22% to around 10.5%, a move experts say lowered financing costs and supported business activity.
The improving macroeconomic environment was mirrored in the performance of the Pakistan Stock Exchange. The KSE-100 Index crossed 170,000 points, compared to about 105,000 points last year, posting a gain of over 60%. “Markets responded positively to falling interest rates and the perception of policy continuity,” said a market analyst. “The rally reflects expectations that the worst of the economic turbulence is over.”
Foreign exchange reserves also strengthened, rising to over $21bn from $15.9bn in December last year. According to economists, this improvement reduced immediate external financing risks. “Higher reserves have given policymakers some breathing space and improved confidence among investors and lenders,” said a banking sector expert.
Pakistan’s digital economy emerged as another bright spot. IT exports grew by 19% during the first five months of the current financial year, reaching $1.8bn between July and November. “The technology sector is showing that Pakistan can compete globally beyond traditional exports,” said a technology industry expert, noting that consistent policy support could further accelerate growth.
On the external financing front, Pakistan received an IMF tranche of about $1.2bn in December 2025. Economists view this as a key anchor for stability. “IMF support has played a critical role in restoring discipline and confidence,” said an analyst, adding that it also helped shore up reserves and stabilise the currency. Exporters also welcomed the abolition of the 0.25% Export Development Surcharge. “Even small cost reductions matter in a highly competitive global market,” said an industry representative.
Experts also pointed to progress on structural reforms, including the completion of Pakistan International Airlines’ privatisation in 2025. “This sends an important signal that the government is serious about tackling losses of state-owned enterprises,” said a fiscal policy expert. The launch of the “Uraan Pakistan” five-year economic transformation plan in late 2024 was also cited as a positive step. “Early indicators suggest some progress, particularly in inflation control and external stability,” an economist said, while cautioning that implementation would be key.
Despite the gains, financial experts warned that significant risks remain. “High electricity and gas tariffs continue to raise the cost of doing business and undermine industrial competitiveness,” said an industry analyst. The trade deficit widened to about $15.4bn in the first five months of the current fiscal year, compared to $11.7bn a year earlier. “This clearly shows that export growth is not keeping pace with imports,” an economist observed.
Investment activity remained weak, with net foreign direct investment rising only marginally to $2.49bn in FY 2024-25. “Stability alone is not enough to attract large-scale investment,” said an investment analyst. “Investors want predictable policies, lower energy costs and a broader reform push.” Experts also highlighted the narrow tax base as a continuing constraint. “With a tax-to-GDP ratio of around 10% and fewer than six million taxpayers, fiscal space remains extremely limited,” said a tax specialist.
Overall, economists describe 2025 as a year of cautious recovery rather than full economic turnaround. “The fundamentals have improved and the immediate risks have reduced,” said a senior economist. “But unless structural issues such as energy pricing, exports, investment and tax reform are addressed decisively, sustaining this recovery will remain a major challenge.”
