The Planning Commission has acknowledged that federal and provincial policy decisions have resulted in a 13.5% contraction in major crops this fiscal year. This decline is projected to increase the nation’s reliance on food imports, potentially straining foreign exchange reserves.

In a working paper prepared for the federal budget 2025-26, the Planning Commission linked the lower-than-targeted GDP growth to the agriculture sector’s underperformance. “GDP growth for FY25 is recorded at 2.7pc against the target of 3.6pc, primarily due to a massive contraction in key commodity-producing sectors, including critically important crops, which witnessed a 13.5pc contraction due to adverse weather conditions,reduced rainfall,input challenges,and policy shift,” the Planning commission stated.

Last year, the government introduced a minimum support price (MSP) for wheat, but the Punjab government later withdrew its support, leaving farmers vulnerable to market forces. Afterward, as part of negotiations with the IMF, the federal government declared its intention to discontinue commodity market interventions and refrain from implementing minimum support prices.

The Planning Commission noted that subsequent policy changes, including extended fertiliser subsidies, exacerbated the challenges faced by farmers.

“During FY25, the crop sector showed mixed trends as production of important crops declined by 13.5pc, whereas other crops showed growth of 4.8pc. Production of cotton declined by 30.7pc,maize by 15.4pc, sugarcane by 3.9pc, rice by 1.4pc, and wheat by 8.9pc”, the commission noted.

The commission stated that declining yields of sugarcane and rice, despite a slight increase in cultivated area, could be attributed to erratic weather patterns or input issues during the growing season.They warned that the data highlighted the need for improved policy support and climate-resilient practices.

Cotton ginning also experienced a contraction of 19% in FY25, compared to a growth of 47.2% the previous year. “This was mainly due to decline in cotton production and closure of ginning factories in the country”, the working paper reads.

According to the commission, the federal government managed to contain the expansion of net domestic assets to Rs145.6bn in 2024-25, compared to Rs1.588 trillion the previous year. “This was largely due to the government’s net retirement of SBP borrowings, reduced demand for budgetary support from scheduled banks owing to lower fiscal deficit and a net retirement of financing for commodity operations, mostly driven by repayment of loans availed for wheat procurement”, the commission said.

“It mainly reflects the impact of reforms in commodity operations to stem the accumulation of commodity debt.These measures included rationalisation of wheat procurement, gradual abolition of MSP” besides the timely payment of subsidies, and transitioning to targeted subsidies, mostly in the energy sector.

Conversely, the planning commission acknowledged the livestock sector’s positive performance, attributing it to government initiatives. “Livestock maintained its growth streak to 4.7pc during current year compared to 4.4pc last year.This was mainly due to key initiatives like vaccination programmes for livestock, both by the federal and provincial governments” in the improvement in surveillance programmes and disease control mechanisms in the country.

The underperformance in agriculture has also impacted the manufacturing sector, which slowed from 3% growth to 1.3% in FY2024-25, against a target of 4.4pc. The Large-Scale Manufacturing (LSM) sector contracted by 1.5pc in FY2024-25, reversing its modest growth from the previous year, “underscoring persistent weaknesses in industrial output and subdued demand.”

Declines were recorded in LSM groups such as food production, chemicals, non-metallic mineral products, iron and steel, electrical equipment, machinery, and furniture. This offset growth in tobacco, textiles, wearing apparel, coke and petroleum products, automobiles, and other transport equipment.

“GDP growth for FY25 is recorded at 2.7pc against the target of 3.6pc, primarily due to a massive contraction in key commodity-producing sectors…”