What happened on 31 Dec 2025?

 Executive Summary

This document synthesizes key developments across Pakistan's economy, financial markets, and major industries as of the start of 2026. The analysis reveals a complex landscape characterized by fiscal pressures and macroeconomic improvements, robust stock market performance in 2025 despite underlying economic challenges, and significant shifts in corporate strategy and regulatory enforcement.

Key Takeaways:

• Fiscal Challenges Persist: The Federal Board of Revenue (FBR) faces a significant revenue shortfall of over Rs 336 billion for the first half of fiscal year 2025-26, prompting a downward revision of the annual target. The government has committed to contingency tax measures to meet IMF agreements.
• Exceptional Stock Market Performance in 2025: The Pakistan Stock Exchange's KSE-100 Index delivered an impressive 51% return in CY2025, ranking as the second-best performing frontier market. This growth was driven by political stability, interest rate cuts, and improved macroeconomic indicators, outperforming other domestic asset classes except for gold.
• Aggressive Tax Enforcement and Digitization: The FBR's partnership with NADRA is set to transform tax collection, leveraging AI and advanced data analytics to compute indicative tax liabilities for filers and non-filers. Mandatory registration for e-commerce vendors and new utility connections underscores a broader push for compliance.
• Major Corporate Consolidation and Growth: The telecom sector witnessed a landmark event with PTCL completing its 100% acquisition of Telenor Pakistan. In the fintech space, JazzCash expanded its user base to 57 million, processing over PKR 15 trillion in transactions, highlighting the rapid shift towards a cashless economy.
• Contrasting Industrial Fortunes: The cement sector is poised for expansion, with DG Khan Cement announcing Pakistan's largest single clinker production line. Conversely, the tourism sector faced a setback with Serena Hotels closing its Swat Valley property after nearly four decades, citing a combination of economic and security challenges.
• Global Energy Market Downturn: Global oil prices are set for their largest annual drop since 2020, with Brent crude down nearly 18% in 2025 due to oversupply concerns. This trend contrasts with domestic price hikes, such as the increase in LPG prices in Pakistan by Rs 10.68 per kg.

1. Pakistan Economic and Fiscal Overview

1.1 FBR Revenue Collection Shortfall

The Federal Board of Revenue (FBR) reported a significant revenue shortfall of over Rs 336 billion in the first half of the fiscal year 2025-26 (1HFY26).

• Collected Revenue (1HFY26): Rs 6,154 billion (provisional).
• Target Revenue (1HFY26): Rs 6,490 billion.
• Achievement Rate: 94.8% of the target.
• December 2025 Shortfall: A monthly shortfall of Rs 25 billion was recorded, with collections at Rs 1,421 billion against a target of Rs 1,446 billion.

In response, the government has revised the annual FBR target for FY26 downward from Rs 14,307 billion to Rs 13,979 billion. To address potential fiscal gaps, authorities have assured the IMF of implementing contingency measures, including a 5% increase in Federal Excise Duty (FED) on fertilizers and pesticides and introducing FED on high-value sugary items.

1.2 The Economic Climate of 2025: A Year of Contradictions

The year 2025 was described by Zubair Motiwala, Chairman of the Businessmen Group (BMG), as one of the most "challenging and turbulent periods for Pakistan’s economy," marked by "deep-rooted challenges, policy uncertainty, and sustained pressure on productive sectors."

• Macroeconomic Improvements:
  • The policy interest rate was reduced from 23% to approximately 10.5%.
  • The dollar-rupee exchange rate showed relative stability.
  • The current account and trade deficits were better managed.
  • Foreign exchange reserves improved.
  • The stock market experienced a significant revival.
• Microeconomic Stress:
  • Local industries struggled with high energy costs, excessive taxation, and weak demand.
  • Exports remained stagnant or declined, indicating deep structural inefficiencies.
  • The federal budget for 2025 was seen as "deeply disappointing for trade and industry" due to increased taxation and withdrawal of concessions.

1.3 Pakistani Rupee Performance

The Pakistani rupee depreciated by Rs 1.75 against the US dollar during the calendar year 2025.

• Closing Rate (Dec 31, 2025): Rs 280.12 per dollar.
• Closing Rate (Dec 31, 2024): Rs 278.55 per dollar.

Despite the annual depreciation, the currency has shown relative stability in recent months, supported by steady foreign exchange inflows and improved investor confidence. However, experts caution that rising economic activity could increase import-related dollar demand in 2026.

2. Taxation and Regulatory Enforcement

2.1 Enhanced FBR-NADRA Collaboration for Tax Base Broadening

Under Section 175B of the Income Tax Ordinance, 2001, the National Database and Registration Authority (NADRA) has been empowered to actively assist the FBR in tax enforcement.

• Data Sharing: NADRA can share all records with the FBR, including identity, assets, financial transactions, and declared wealth.
• AI-Based Tax Computation: NADRA is authorized to compute a person's indicative income and tax liability using Artificial Intelligence, statistical models, and modern data analytics tools.
• Enforcement Process:
  1. The FBR will notify the individual of the NADRA-computed tax liability.
  2. The individual can accept and pay the amount.
  3. If unpaid, the FBR can initiate enforcement action based on NADRA's computation.

This development marks a paradigm shift towards data-driven, automated tax enforcement for Tax Year 2026.

2.2 Mandatory Taxpayer Registration

For Tax Year 2026, taxpayer registration is mandatory for specific economic activities under Section 181 and 181AA of the Income Tax Ordinance.

• Who Must Register:
  • All individuals and businesses selling goods or services online.
  • Applicants for new commercial or industrial electricity and gas connections.
• Enforcement Mechanism: Online marketplaces and courier services are prohibited from allowing unregistered vendors to operate. Utility companies will not process applications from unregistered applicants.
• Active Taxpayers' List (ATL): FBR maintains the ATL, and inclusion is necessary for smooth business operations and eligibility for government tenders.

2.3 FBR Audit Powers and Disciplinary Actions

• Audit Authority: Under Section 177, the FBR Commissioner holds extensive audit powers, including the right to request any records (physical or electronic) for up to six years, conduct electronic audits via video link, and use sectoral benchmark ratios if records are incomplete. The FBR can also appoint special audit panels, including international tax experts and chartered accountants.
• Disciplinary Action: Following orders from the Prime Minister, the FBR demoted Muhammad Asim Khattak, a BS-20 Inland Revenue Service (IRS) officer, to BS-19 for one year due to established charges of inefficiency and misconduct.
• Anti-Smuggling Operation: Gadani Customs, with support from the Frontier Corps, seized 30.5 metric tons of smuggled betel nuts and four buses, with a total estimated value of Rs 252.5 million.

3. Global and Domestic Stock Market Performance (2025 Review)

3.1 Pakistan (KSE-100)

The KSE-100 Index was a top global performer in 2025, delivering substantial returns to investors.

• Annual Return (CY25): 51% in PKR terms, 50% in USD terms.
• Performance: Ranked as the second-best performing frontier market after Romania.
• Key Milestones: The index crossed the 175,000 mark for the first time on the year's last trading day before closing at 174,054.32.
• Drivers: The rally was supported by successful IMF reviews, credit rating upgrades, a 250 basis point reduction in interest rates, and the privatization of Pakistan International Airlines (PIA).
• Market Activity: Average daily volumes surged 40% to 797 million shares, and market capitalization rose 36% to US$70 billion.

3.2 International Market Performance

Market/Index	2025 Performance	Key Commentary
India	Nifty 50: +10.5%, Sensex: +9.1%	Underperformed emerging market peers. Outlook for 2026 is positive, supported by earnings and policy.
Hong Kong	Hang Seng Index: +28%	Logged its best year since 2017.
China	CSI300 & Shanghai Composite: ~+18%	Best annual performance in six years, fueled by an AI rally, stimulus, and a strengthening yuan.
Egypt	Blue-chip Index: +>40%	Outperformed Gulf peers, marking its best year since 2023.
Sri Lanka	CSE All Share Index: +42%	Posted its third consecutive year of rise.
USA	All three major indices	Set to close 2025 with solid double-digit annual gains, bolstered by enthusiasm for AI.
Saudi Arabia	Benchmark Index: -13%	Weighed down by weak oil prices and a robust IPO pipeline that affected market liquidity.
Australia	S&P/ASX 200: +6.8%	Underperformed major global benchmarks.

4. Key Corporate and Industry Developments

4.1 Telecommunications and Technology

• PTCL Completes Telenor Acquisition: Pakistan Telecommunication Company Limited (PTCL) finalized its acquisition of 100% shareholding in Telenor Pakistan and Orion Towers on December 31, 2025. The deal, valued at approximately Rs 108 billion, received final approval from the PTA.
• JazzCash Surpasses 57 Million Users: The digital financial services platform processed over PKR 15 trillion in gross transaction value in 2025. Its Raast-enabled QR merchant network grew to over 850,000, playing a key role in the government's cashless economy initiative.
• Supernet Goes Global: Supernet rebranded to SupernetGlobal and announced a strategic expansion into the Middle East, Africa, and Central Asia, establishing Dubai as its first regional hub.
• Telecom Sector Growth: The PTA's annual report revealed that Pakistan's telecom users crossed 200 million, broadband connections exceeded 150 million, and sector revenue surpassed Rs 1 trillion in 2024-25.

4.2 Financial Services

• Bank of Punjab Launches Skills Impact Bond (PSIB): BOP formally launched the PSIB, a Rs 1 billion, AAA-rated Term Finance Certificate. This "pay-for-success" model will fund skills development programs, with payments tied to successful job placements for Pakistani youth.
• Meezan Bank Appoints New CEO: Dr. Syed Amir Ali was appointed as the new President & CEO of Meezan Bank, effective December 30, 2025, succeeding the bank's founder, Irfan Siddiqui.
• Indian Banks' Health: An RBI report indicated that Indian banks' gross bad loan ratio may fall to 1.9% by March 2027, but it warned of rising risks and stress in the non-banking financial companies (NBFCs) sector.

4.3 Industry and Infrastructure

• DG Khan Cement Announces Major Expansion: The company established a Letter of Credit to set up Pakistan’s largest single clinker production line, with a capacity of 11,000 tons per day, at its Dera Ghazi Khan site.
• Serena Hotels Closes Swat Property: In a significant blow to tourism, Serena Hotels announced the closure of its Swat Valley hotel, effective January 1, 2026, after nearly four decades of operation. The decision is attributed to economic instability and security challenges.
• Thatta Cement Invests in Wind Power: The company's board approved an additional 7.5MW wind power project, which will increase its total renewable energy capacity to 17.3 MW.
• Fisheries Sector Potential: A PIDE seminar highlighted that Pakistan’s fisheries and aquaculture sector has the potential to generate USD 10 billion annually with improved management, value addition, and policy implementation.

5. Energy and Commodities Market

5.1 Global Oil and Gas

• Oil Prices See Largest Annual Drop Since 2020: Oil prices were set for a fall of over 15% in 2025, with Brent crude down nearly 18%. This decline is attributed to expectations of oversupply, increased OPEC+ output, and concerns about global economic growth.
• US Natural Gas Futures Fall: US natural gas futures dropped over 5% on forecasts of above-normal temperatures, which reduces heating demand.
• Venezuela's Fuel Storage Crisis: A US blockade on sanctioned tankers has severely cut Venezuela's residual fuel exports. This has forced the state energy company PDVSA to use floating storage and other extreme measures to avoid shutting down refinery units as onshore tanks reach capacity.

5.2 Domestic Prices and Commodities

• LPG Price Increased: The Oil and Gas Regulatory Authority (OGRA) notified an increase in LPG prices by Rs 10.68 per kg, effective January 2026. The price of an 11.8-kg domestic cylinder rose by Rs 126.09 to Rs 2,592.19.
• Gold Price Declines: On December 31, 2025, the price of gold in Pakistan fell by Rs 2,500 per tola to Rs 456,962, in line with a $25 decline in the international market.
• Karachi Cotton Association Halts Operations: The KCA clarified that it has not been fixing daily cotton spot rates since December 13, 2025, due to the sealing of the Cotton Exchange Building by the FIA and Evacuee Trust Property Board. It warned against illegal rates being quoted in its name.