KARACHI:
The State Bank of Pakistan (SBP) has trimmed its FY26 growth outlook, warning that devastating floods will keep real GDP expansion near the lower end of its earlier 3.25%4.25% forecast range. Private sector analysts, however, paint an even bleaker picture, with Topline Securities revising its projection to just 2.75%-.25%, down from 3.5%4.0%, amid widespread agricultural losses and mounting macroeconomic pressures.
Topline Securities has cut Pakistan’s economic growth forecast for FY26, warning that floods and heavy rains have disrupted agriculture and are likely to weigh on broader macroeconomic indicators. The revised outlook comes days ahead of the International Monetary Fund’s (IMF) second semi-annual review of the country’s $7 billion Extended Fund Facility (EFF) on September 25, 2025.
Topline projects that agricultural growth has been trimmed to 2.6% from 3.4%, with key crops expected to contract by 2.3%. “We now expect damage of 15% and 10% to rice and cotton, respectively,” the report said.
A few days earlier, Arif Habib Limited (AHL) also revised down its projections on agricultural production due to floods.
“We expect GDP growth to be down from 3.46% to 3.17% post-floods,” AHL’s Sana Tawfiq said while talking to the Express Tribune.
Pakistan’s economy faces fresh headwinds as initial estimates place the cost of the 2025 floods at Rs409 billion ($1.4 billion), or 0.33% of GDP, according to AHL Research. Agriculture bore the brunt with losses exceeding Rs302 billion (0.24% of GDP), underscoring the sector’s vulnerability to climate shocks. Damages to transport and communication infrastructure are valued at Rs97.6 billion, while housing losses stand at Rs8.95 billion. Livestock losses were minimal at Rs0.5 billion.
Director Research of Topline Securities, Shankar Talreja, noted that the current account deficit (CAD) is expected at the higher end of 0-0.5% of GDP, as imports are forecast to grow by 10% versus 9% earlier, while exports may only rise 1% compared to the prior 4% projection. Remittances, however, are revised upward to 6% growth, or $40.2 billion, “reflecting historical increases during crises.”
Floods have triggered sharp food price increases, with wheat and flour up 38-40% and key vegetables surging about 40% in recent weeks. Inflation for FY26 is now expected at 6.5%-7.5%, versus 6%-7% earlier. September food inflation alone is projected at 8%-9% month-on-month.
Sheikh Muhammad Tehseen, a businessman, warned that the decline in agricultural output following the recent floods will have far-reaching consequences across the food value chain. He said the disruption will not only reduce domestic availability of key commodities but also hit food exports, including packaged and processed items, thereby affecting Pakistan’s trade earnings.
Tehseen urged the government to formulate a comprehensive strategy to cushion the agricultural sector against these shocks. He recommended measures to boost crop production in unaffected areas to offset potential shortfalls. At the same time, he emphasised supporting local industries by capping energy and utility tariffs and lowering the policy rate. Such steps, he argued, would enhance industrial output, sustain exports, and help narrow the looming trade deficit.
President of the Sindh Abadgar Board (SAB), Mahmood Nawaz Shah, pinned some hope on cotton. Highlighting that cotton arrivals in Sindh have surged by about 40%, exceeding expectations, he said Sindh now represents nearly half of Pakistan’s cotton area, with losses capped at around 10%. While Punjab may see setbacks in the coming weeks, Sindh’s crop remains resilient. Rice production is also expected to stay stable, with potential losses not crossing 10%, raising hopes of a bumper harvest if last year’s challenges do not recur. Looking ahead to the Rabi season, Shah stressed wheat’s importance, noting that adequate winter rains could ensure sufficient water supplies. Even a 510% wheat shortfall, he added, could be balanced by gains in other feed crops.
Given these risks, Topline sees no further monetary easing. “We expect the policy rate to bottom at 11% instead of our earlier 10% forecast,” it said.
The fiscal deficit for FY26 is revised up to 4.8% of GDP from 4.1%, as revenues are projected at Rs13.6 trillion versus the earlier Rs14.1 trillion. The primary balance is expected at 1.6% of GDP. The government has declared an agriculture emergency, with possible electricity waivers for flood-hit households.
Despite pressures, Topline expects the IMF programme to remain intact. “Any relaxation on revenue or balance targets cannot be ruled out, given precedents during past floods,” it said.
Pakistan’s external financing requirement stands at $10.5-11.5 billion, with reserves projected above $17 billion by June 2026. The rupee is forecast at Rs292-297 per dollar by that date.
Topline said reforms remain on track, including Pakistan International Airline’s privatisation, circular debt resolution, and investment in mining, offshore drilling, and renewables. The Reko Diq project is expected to achieve financial close soon.
“Though the floods pose near-term challenges, Pakistan’s resilient footing and ongoing reforms will support recovery,” the report said.
