What happened on 30 Dec 2025?

Executive Summary

This briefing document synthesizes critical developments across Pakistan's economic, regulatory, and corporate landscapes as of year-end 2025. The overarching theme of 2025 was turbulence, characterized by significant microeconomic pressures on businesses, including high energy costs and excessive taxation. Despite these challenges, several positive macroeconomic indicators emerged, such as a sharp reduction in the policy interest rate, improved foreign exchange reserves, and a powerful bull run in the stock market.

The regulatory environment is undergoing a significant transformation, with the Federal Board of Revenue (FBR) aggressively expanding its digital surveillance and enforcement powers. New legal provisions grant the FBR real-time access to a wide array of citizen and business data and the authority to conduct unannounced premises inspections. These measures have been met with resistance, leading to organized protests by traders who decry the policies as anti-business. Concurrently, the government is demonstrating a firm stance against corruption within the tax authority, evidenced by the high-profile dismissal of senior officers.

Pakistan's financial sector is rapidly evolving, driven by a boom in digital payments. Mobile app-based transactions now constitute over 80% of all digital retail payments, with the State Bank of Pakistan's (SBP) Raast system showing strong growth momentum. The Pakistan Stock Exchange (PSX) has been a standout performer, capping off the year with a robust 52% return and the KSE-100 index reaching an all-time high.

Key corporate developments include Pakistan International Airlines (PIA) resuming direct flights to London after a six-year hiatus and major international deals in the technology and aviation sectors. Globally, markets exhibited mixed performance at year-end, with geopolitical tensions, particularly between Saudi Arabia and the UAE over Yemen and the ongoing Russia-Ukraine conflict, influencing energy prices and investor sentiment.

1. Pakistan's Economic and Business Environment in 2025

The year 2025 was described as one of the most turbulent and challenging periods for Pakistan's economy, with businesses navigating policy uncertainty and significant structural issues.

• Overall Assessment: Zubair Motiwala, Chairman of the Businessmen Group (BMG), characterized 2025 as a year of "economic firefighting," where trade and industry faced shrinking profit margins, rising input costs, and a hostile business environment.
• Macroeconomic Positives: Despite microeconomic struggles, several positive developments were noted:
  • Interest Rate Reduction: The policy interest rate was sharply reduced from 23% to approximately 10.5%.
  • FX Stability: Improvements were observed in the dollar-rupee exchange rate stability and the management of current and trade account deficits.
  • Reserve Growth: Foreign exchange reserves saw growth.
  • Stock Market Revival: The Pakistan Stock Exchange (PSX) experienced a strong revival, indicating improved investor sentiment.
• Microeconomic Challenges: Conditions for local industries remained alarming due to:
  • High energy costs.
  • Excessive taxation and regulatory pressures.
  • Weak consumer demand.
  • Largely stagnant exports, highlighting structural inefficiencies.
• Federal Budget 2025: The budget was termed "deeply disappointing" for businesses, citing increased taxes, withdrawal of concessions, and new levies that weakened competitiveness.
• Key Reform: The privatization of Pakistan International Airlines (PIA) was highlighted as a rare reform success, described as a "light at the end of the tunnel."
• Outlook for 2026: Motiwala urged the government to shift from coercive policies to facilitation and partnership with the private sector. Key demands for 2026 include rationalizing regulatory bodies, reducing energy tariffs, overhauling the tax regime, and removing levies like the 1.8% import cess.

2. Taxation and Regulatory Developments

The Federal Board of Revenue (FBR) has significantly enhanced its enforcement capabilities through new legal frameworks, while also facing public backlash and addressing internal corruption.

FBR's Expanded Powers and Policies

• Digital Surveillance (Section 175A): For tax year 2026, the FBR has gained legal authority to access real-time digital databases of multiple government and private entities. This allows for cross-matching taxpayer information instantly.
  • Accessible Databases: NADRA (citizen profiles), FIA & Bureau of Emigration (travel history), Provincial Land Authorities (property records), Excise & Taxation Departments (vehicle ownership), and utility companies (electricity/gas consumption).
  • Implications: This shift towards data-driven taxation makes undeclared assets more visible and increases pressure on non-filers to comply.
• Power of Entry (Section 175): Income tax laws now empower the FBR to enter any business or residential premises without prior notice for audits or investigations.
  • On-site Authority: Authorized officers can access and impound accounts, documents, and computers; copy data; and prepare inventories.
  • Legal Standing: Section 175 overrides claims of privilege or public interest, making such access fully lawful.
• Record Retention (Section 174): Taxpayers are legally required to maintain all tax-related records (accounts, invoices, bank statements) for six years after the end of the relevant tax year.
  • Extended Retention: If any legal proceeding (assessment, appeal, prosecution) is pending, records must be kept until the final decision, even if the six-year period has passed.
  • Exception: There is no time limit for retaining records related to undisclosed income or assets under Section 111.

Trader Protests and FBR Responses

• Islamabad Trader Protest: On December 30, 2025, traders in Islamabad, led by the All Pakistan Anjuman-e-Tajran (APAT), staged a protest against the FBR's policy of installing Point of Sale (POS) devices, calling it a "black law."
  • Allegations: APAT President Ajmal Baloch alleged widespread corruption within the FBR, citing an IMF report on Rs 53 trillion in annual corruption in Pakistan, and claimed the POS policy creates opportunities for bribery.
  • Demands and Warnings: Traders demanded the immediate withdrawal of the policy and warned of further agitation, including a potential nationwide shutter-down strike.
• Gilgit-Baltistan Tax-Free Imports: The FBR clarified its procedure for tax-free imports into Gilgit-Baltistan, which is exempt from federal tax laws.
  • Safeguards: An annual import ceiling of Rs. 4 billion has been imposed. An automated monitoring system via the WeBOC platform will track trader-wise quotas in real-time to prevent misuse. Strict penalties, including quota cancellation, will be applied for any diversion of goods outside GB.

FBR Disciplinary Actions

• Karachi Inspector Dismissed: Muhammad Khalid, an Inspector at RTO-I Karachi, was dismissed from service for illegally accessing the FBR's e-portal, downloading data of 134 taxpayers, and misusing the names of senior officers to prepare illegal notices for personal motives.
• BS-20 Officer Dismissed: Prime Minister Shehbaz Sharif approved the dismissal of Riaz Ali Shah, a BS-20 IRS officer, on proven corruption charges. An inquiry found that eleven out of twelve charges against him were proven.

3. Banking, Finance, and Payments

Pakistan's financial system demonstrated significant growth in digital payments, while key institutions underwent leadership changes.

Digital Payments Ecosystem

• Retail Payments Growth (Q1 FY26): According to the SBP's Quarterly Payment Systems Review, retail payment volumes grew by 10% to 2.8 billion transactions, valued at Rs 166 trillion.
• Mobile Banking Dominance: Mobile app-based banking was the primary driver of this growth.
  • Mobile apps accounted for 2 billion transactions (81% of all digital payments) valued at Rs 33.7 trillion.
  • Digital channels overall represented 90% of total retail payments.
• Raast System Performance: The government's Raast Instant Payment System showed strong momentum, processing 544 million transactions valued at Rs 12.8 trillion. Person-to-Person (P2P) transactions surged by 31% to 535 million.
• Card Usage: The number of payment cards in circulation reached 61.3 million, of which 90% are debit cards.

SBP Interventions and Banking Operations

• Foreign Exchange Intervention: Between June 2024 and September 2025, the SBP purchased $9.7 billion from domestic foreign exchange markets to build reserves and support repayments.
• Year-End Operations: The SBP instructed all commercial banks to extend working hours until 10:00 PM on December 31, 2025, to facilitate the payment of government taxes.
• Bank Holiday: A bank holiday was announced for January 1, 2026, with banks closed for public dealing but employees attending as usual.

Key Leadership Changes

• Meezan Bank: Dr. Syed Amir Ali was appointed President and CEO, replacing founding CEO Irfan Siddiqui, who will continue to serve on the board.
• Habib Metropolitan Bank: Sima Kamil, a former SBP Deputy Governor and the first woman to head a major Pakistani bank (UBL), resigned as an independent director from the board.
• ICMAP: Azeem Hussain Siddiqui assumed office as the new President of the Institute of Cost and Management Accountants of Pakistan (ICMAP).

4. Stock Market Performance and Analysis

The Pakistan Stock Exchange had a landmark year, significantly outperforming many global and regional peers.

Pakistan Stock Exchange (PSX)

• Annual Performance: The benchmark KSE-100 Index delivered a robust 52% return in calendar year 2025, marking one of the most powerful three-year bull runs in its recent history. Market capitalization increased by 39% to reach Rs 19.7 trillion (USD 70 billion).
• Record Highs: On December 30, 2025, the KSE-100 Index hit a new all-time high of 174,472 points.
• Top Performing Sectors: Vanaspati & Allied Industries (+120%), Investment Banks/Companies (+97%), and Wollen (+88%) saw the highest market cap increases. Among large caps, Banks (+85%), Cement (+81%), and Fertilizers (+57%) were top performers.

Global and Regional Market Snapshot (Year-End 2025)

Market/Index	2025 Performance / Status	Key Drivers / Notes
South Korea (KOSPI)	▲ Up ~76%	Best year since 1999, driven by AI-led chipmaker rally and market reforms.
Japan (Nikkei 225)	▲ Up 26%	Best year since 2023, though gains were trimmed on the final trading day.
China (Shanghai Comp.)	▲ Up ~18%	Ended a 9-day winning streak at year-end but posted best annual performance since 2019.
USA (S&P 500)	▲ Up ~17%	Subdued in holiday-thin trade at year-end; set for 8th consecutive month of gains.
Europe (STOXX 600)	▲ Strong Gains	Hit consecutive record closes, on track for the strongest year since 2021.
India (Nifty 50)	▲ Up 9.7%	Muted at year-end, weighed down by record foreign outflows of $18.5 billion in 2025.
Australia (ASX 200)	▲ Up 6.9%	Lagged global peers, ending the final full trading day flat.
Gulf Markets	▼ Mostly Lower	Retreated due to rising tensions between Saudi Arabia and the UAE over Yemen.

5. Corporate and Sector-Specific News

Technology

• Meta Acquires Manus: Meta announced its acquisition of Chinese AI startup Manus for over $2 billion to accelerate the integration of advanced AI across its platforms. Manus has developed a general-purpose AI agent designed to act as a "digital employee."
• US Approves Chip Tool Shipments: The US government granted an annual license to Samsung Electronics and SK Hynix, allowing them to ship US chip manufacturing equipment to their facilities in China for 2026.

Aviation

• PIA Resumes London Flights: After a six-year suspension, Pakistan International Airlines (PIA) will restart direct flights to London from March 29. The airline will operate four weekly flights from Islamabad to Heathrow's Terminal 4.
• Air China's Airbus Order: Air China announced a deal to purchase 60 Airbus A320NEO jets for approximately $9.5 billion at list prices, with deliveries scheduled between 2028 and 2032.

Energy

• Oil Prices in 2025: Oil prices slipped over 10% in 2025, with Brent crude on track for its longest stretch of annual losses as supply outpaced demand.
• Geopolitical Impact: At year-end, oil prices were steady but influenced by fading hopes of a Russia-Ukraine peace deal and rising tensions in Yemen involving Saudi Arabia and the UAE.
• WAPDA Hydel Generation: WAPDA's 22 hydel power stations generated 33.12 billion units of electricity in 2025, accounting for nearly 30% of total power in the national system at an average tariff of just Rs 3.83 per unit, making it the most affordable energy source.

Media & Entertainment

• Warner Bros Rejects Paramount Bid: Warner Bros Discovery is expected to reject Paramount Skydance's amended $108.4 billion hostile bid, potentially keeping it on track to pursue a rival deal with Netflix.