Dr. Ikramul Haq & Abdul Rauf Shakoori
Pakistan’s economy has shown positivity in the face of repeated climate shocks, yet the reality is that the recent monsoon floods made it clear that current measures are inadequate. The government responded with relief efforts, rebuilding infrastructure, and launching climate adaptation programmes, but these steps, though imperative, only scratch the surface of what is truly required.
The country needs to move faster and take practical steps for building stronger flood defense systems, introducing modern irrigation and water management techniques, investing in climate-resilient crops, and expanding disaster insurance to protect farmers and vulnerable communities.
At the same time, urban planning must adapt to rising risks, with better drainage, greener spaces, and stricter enforcement against encroachments in flood-prone areas. These efforts, alongside broader reforms and support from international partners, will not just help Pakistan recover from floods but also secure a stronger, safer economy for the years ahead, as reflected in the latest statistics released by the State Bank of Pakistan (SBP).
The statistics provided by the SBP, reserve money of the economy, which anchors the monetary base, stood at Rs. 13,458,261 million by July 2025, reflecting a sustained expansion compared to the previous months. The strength of the monetary base comes from an impressive level of currency in circulation, recorded at Rs. 11,256,370 million, indicating that liquidity within the economy is well-maintained. The healthy reserve levels signal that monetary policy actions are being carefully balanced to support growth while safeguarding price stability. The circulation of money across the economy reflects an expansion in transactional demand, supported by growing confidence of households and businesses in the financial system.
The monetary aggregates also highlight a broad-based improvement in the financial sector. Broad money (M2) amounted to Rs. 39,223.3 billion in July 2025, reflecting stable expansion from earlier months. This momentum indicates an expanding financial inclusion process and an increased capacity of banks to intermediate deposits into productive advances.
The ratio of scheduled banks’ advances to deposits stood at 36.9 percent in July, slightly higher than in June, showing an encouraging trend of increased credit flows toward the private sector. Simultaneously, the investment-to-deposits ratio reached 108 percent, reflecting the growing strength of banks’ balance sheets and their active role in financing government securities, which contributes to fiscal stability.
The government’s budgetary borrowing from banks, a critical component of fiscal operations, reached Rs. 41,436,353 million by July 2025 in net terms. Similarly, the level of reliance on banks for financing remains significant; the overall financing pattern has become more stable, aided by the increased appetite for government securities among financial institutions.
At the provincial level, net claims on provincial governments improved, standing at negative Rs. 3,099,401 million in July, suggesting an improvement in fiscal discipline among sub-national governments. Similarly, borrowing for commodity operations remained within manageable limits, reflecting a more prudent approach to stock management and commodity financing, which reduces the fiscal burden over time.
The banking system continues to display healthy growth in deposits and advances, which is a sign of improving financial depth. Deposits included in broad money rose to Rs. 30,557,557 million by July 2025, showing confidence in the banking system as the preferred channel for financial savings. Transferable deposits alone stood at Rs. 24,127,708 million, while other deposits contributed Rs. 6,429,849 million. This increase in deposits reflects both the trust of depositors and the expansion of digital financial services across the country. Advances to the private sector also showed strong levels, with banks maintaining diversified exposures across agriculture, small and medium enterprises (SMEs), and large corporates, thus supporting economic activity in multiple segments.
The scheduled banks’ investments in securities remained robust, highlighting continued strength in balance sheet structures. At the same time, lending rates exhibited moderation. The weighted average lending rate on outstanding loans was 11.5 percent in July, down from earlier months, while the weighted average deposit rate on outstanding deposits stood at 5.2%.
The narrowing spread is encouraging for private sector credit, as lower financing costs are expected to translate into stronger business investment. The interbank market also reflected stability, with a one-month KIBOR at 11.10% by the end of July. These trends collectively demonstrate that monetary conditions are becoming increasingly supportive of growth while inflationary expectations remain anchored.
The external sector, a traditional area of concern, showed encouraging signs of stability. The exports reached US$2,743 million in July 2025, an improvement from earlier months, however, the imports stood at US$5,422 million. Although the trade balance remains in deficit, the reduction of monthly gaps and the solid performance of exports despite global demand challenges highlight flexibility in key sectors such as textiles, rice, and IT services.
The foreign direct investment recorded US$208.1 million in July, representing continued investor confidence. Similarly, workers’ remittances contributed US$3,214.4 million, providing vital support to the external account. Net reserves with the SBP remained strong at US$14,324.4 million, reflecting improved external buffers. The exchange rate remained stable at Rs. 282.94 per US dollar at the end of July, and the real effective exchange rate index at 98.5752 suggested a competitive position for exports.
The debt profile of the country also reflected improving dynamics. Government domestic debt and liabilities continued to be managed prudently, while external debt remained within sustainable levels. The consistent inflow of multilateral support, together with improved current account management, has ensured that debt servicing obligations are met without undue stress. The outstanding amount in national savings schemes also grew steadily, reaching Rs. 3,441.2 billion by July 2025, reflecting the confidence of households in secure investment avenues.
The money market remained liquid and stable, with treasury bill auctions successfully meeting government financing needs at declining yields, reflecting market confidence. The secondary market for government securities also displayed healthy activity, showing greater depth and investor participation. In the capital market, the Pakistan Stock Exchange continued its remarkable performance. The KSE-100 index surged to 139,390.42 points at the end of July, reflecting strong investor optimism, corporate profitability, and the positive sentiment created by macroeconomic stabilization. Market capitalization expanded across multiple sectors, with technology, energy, and banking leading the way, demonstrating broad-based investor confidence.
The price dynamics of the economy presented an extremely positive picture. National Consumer Price Index (CPI) inflation stood at only 4.1 percent year-on-year in July 2025, a remarkable decline from double-digit levels observed in the previous year. Urban inflation stood at 4.4 percent while rural inflation was contained at 3.5 percent, showing stability across geographies.
Food inflation remained subdued, with rural food prices increasing by only 1.5 percent, while non-food inflation in urban centers was recorded at 5.9 percent. Core inflation was also on a declining path, standing at 7.0 percent in urban areas and 8.1 percent in rural areas. This sharp decline in inflation reflects the success of monetary tightening over the past two years, improvements in supply chains, and the positive effects of a stable exchange rate. The easing of inflation provides households with greater purchasing power and builds confidence for businesses to plan investments.
The manufacturing sector also showed signs of recovery, supported by stable energy supplies and improved credit availability. Large-scale manufacturing industries recorded growth in output, with particularly strong contributions from cement, fertilizers, textiles, and automobiles. The momentum in manufacturing highlights the resilience of domestic demand and the gradual recovery of export-oriented industries. These trends are critical for employment creation and overall economic growth.
The fiscal position also reflected improved performance, as tax collection continued to increase significantly. Federal Board of Revenue’s collection reached Rs. 11,744.3 billion cumulatively by July 2025, reflecting a strong improvement in revenue mobilization efforts. Enhanced digitization of tax processes, broadening of the tax base, and compliance drives have started yielding results. This improvement in revenues provides the government with more fiscal space to invest in public services and infrastructure, which will further support growth.
The national income accounts continued to reflect recovery momentum, with GDP showing broad-based contributions from agriculture, industry, and services, supported by better crop yields and expansion in construction and trade.
The economic statistics from the SBP in August 2025 thus provide a clear reflection of a country on the path to recovery and resilience. The strength of the monetary actions, the stability of the external sector, the robust performance of the capital market, the declining inflation, and the improved fiscal revenue collection all demonstrate that Pakistan is moving toward greater macroeconomic stability.
The lessons from the floods have reinforced the urgency of building climate resilience, and the government’s proactive efforts in this regard are setting the stage for more sustainable growth. With stronger reserves, stable exchange rates, declining inflation, and robust stock market performance, the outlook for Pakistan’s economy remains optimistic. The persistence of reforms and consistent policy actions will ensure that the economy not only withstands shocks but also enters a new phase of sustained expansion in the years ahead.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, environment, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing.
He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law.
He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
X (formerly Twitter): Adbul Rauf Shakoori
The recent publication, coauthored by these writes with Huzaima Bukhari is
Pakistan Tackling FATF: Challenges & Solutions, available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35