Islamabad: The benchmark KSE-100 index witnessed a significant upswing this week, closing at 158,037 points, a 2% increase week-over-week, after peaking at 159,337. This surge comes as the International Monetary Fund (IMF) prepares for a review mission to evaluate the adequacy of the government's fiscal strategies in the wake of devastating floods. Average daily traded volumes also saw a substantial jump, increasing by 41%.

The IMF's impending assessment will focus on whether the government's financial measures sufficiently address the economic challenges posed by the recent floods. Reports suggest the government is contemplating a mini-budget of Rs50 billion, while also aiming to convince the IMF to reduce the Federal Board of Revenue's (FBR) tax collection target for fiscal year 2026 by up to Rs300 billion.

Adding to the economic complexity, the State Bank of Pakistan (SBP) maintained the policy rate at 11% in its recent Monetary Policy Committee (MPC) meeting. The central bank cited potential adverse economic effects from the floods as justification for holding the rate steady.

Positive news emerged from the industrial sector, with Large Scale Manufacturing (LSM) exhibiting 9% year-on-year growth in July 2025, driven by a 58% year-on-year increase in automobile production and a favorable base effect. However, challenges persist in the external accounts, as the trade deficit expanded to approximately US$2.5 billion in August 2025, resulting in a current account deficit of US$245 million for the same month. Foreign direct investment also experienced a decline, falling 22% year-on-year during the first two months of fiscal year 2026.

In the latest treasury bill auction, the government successfully raised Rs202 billion against a target of Rs197 billion, with yields remaining largely unchanged. Finally, the SBP's foreign exchange reserves saw a modest increase of US$21 million week-over-week, reaching US$14.36 billion.