Islamabad [Pakistan], October 1 (ANI): The government has warned that supply chain disruptions caused by ongoing floods could temporarily push up inflation, even as fiscal and industrial performance showed signs of improvement, Dawn reported.

In its Monthly Economic Update and Outlook for September 2025, the Ministry of Finance cautioned that the agriculture sector was expected to suffer due to severe flooding across the country.

'Due to ongoing floods in 2025, the agriculture sector is expected to suffer,' the ministry noted. 'Flood-related disruptions may exert pressure on food supply chains, leading to an uptick in prices. As a result, inflation is expected to rise temporarily but remain contained within the 3.5-4.5 per cent range in September 2025,' it added, according to Dawn.

The ministry, however, expressed satisfaction that despite these challenges, economic activity remained broadly stable. 'The rebound in large-scale manufacturing, supported by encouraging trends in cement dispatches, automobile production, and allied industries, indicates strengthening industrial momentum in the months ahead,' the update said.

Dawn reported that the finance ministry expected the external sector to stay stable, with the current account deficit projected to remain manageable despite higher import demand. Remittances continued to provide strong support, while exports showed early signs of recovery. Declining global commodity prices were also expected to ease the import bill.

The report added that the economy had 'maintained its trajectory of stabilisation and growth during the first two months of the current fiscal year,' with moderating inflation, strengthening manufacturing and contained fiscal imbalances, despite floods since July 2025.

The ministry said the assessment of Kharif crops and livestock damages was still in progress, while climate and agriculture emergencies had been declared nationwide to support farmers impacted by the floods.

According to Dawn, large-scale manufacturing recorded a year-on-year growth of 9 per cent in July 2025 and 2.6 per cent on a month-on-month basis, with 16 of 22 sectors showing positive growth, including textiles, wearing apparel, coke and petroleum products, non-metallic mineral products and pharmaceuticals.

Inflation, measured by the Consumer Price Index (CPI), moderated to 3 per cent in August 2025 and averaged 3.5 per cent during July-August FY26 compared to 10.4 per cent last year.

The Ministry of Finance also highlighted fiscal stability, stating that improved accounts had delivered 'an eight-year low fiscal deficit and a 24-year high primary surplus.' During July-August FY26, FBR's net collection expanded by 14.1 per cent, while expenditures grew by 28.8 per cent. The fiscal deficit was contained at 0.2 per cent of GDP, and the primary surplus improved to PKR 228.9 billion compared to PKR 107.1 billion last year.

On the external front, the current account posted a deficit of USD 624 million during July-August FY26, compared to USD 430 million in the same period last year. Goods exports rose 10.2 per cent to USD 5.3 billion, while imports increased 8.8 per cent to USD 10.4 billion, resulting in a trade deficit of USD 5.1 billion. Remittances rose 7 per cent to USD 6.4 billion, mainly from Saudi Arabia (24.6 per cent share) and the UAE (20.6 per cent), Dawn reported.

Net FDI inflows were recorded at USD 364.3 million, down 22 per cent. However, portfolio investments recorded net outflows of USD 74.8 million (private) and USD 11.8 million (public). As of September 19, foreign exchange reserves stood at USD 19.8 billion, including USD 14.4 billion with the State Bank, compared to USD 9.5 billion in the same period last year.

The ministry added that monetary conditions remained stable, and the stock market sustained its bullish momentum, reflecting investor confidence. While flood-induced disruptions posed temporary risks to inflation, the overall outlook remained stable, supported by industry, external inflows and fiscal management. (ANI)