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Aftab Maken
ISLAMABAD: Pakistan’s economy ended fiscal year 2025-26 on a significantly stronger footing, recording its highest economic growth in four years, single-digit average inflation, and a current account surplus, according to the Finance Division’s Monthly Economic Update & Outlook for June 2026.
The report, released by the Finance Division, said the country’s real Gross Domestic Product (GDP) expanded by 3.7 percent during FY2026, raising the size of the economy to $452.1 billion. The growth was supported by improvements across agriculture, industry, and services despite flood-related disruptions earlier in the year and volatility in global commodity markets.
Agriculture registered 2.9 percent growth during the fiscal year, while the government maintained macroeconomic stability alongside measures to support economic activity.
Inflation returns to single digits
The report highlighted a significant improvement in inflation, with average Consumer Price Index (CPI) inflation easing to 6.7 percent during July-May FY2026, compared to double-digit levels seen in previous years. However, year-on-year inflation stood at 11.7 percent in May 2026.
The government also provided relief to consumers by reducing petrol and high-speed diesel prices by Rs74 per litre and Rs67 per litre, respectively, following a decline in international crude oil prices.
Fiscal indicators improve
Pakistan’s fiscal position strengthened considerably during the year. The fiscal deficit narrowed to 1.1 percent of GDP during July-April FY2026, compared with 3.2 percent in the corresponding period last year.
The government also achieved a primary surplus of 3.5 percent of GDP, while net federal revenues increased by 5.8 percent. Federal Board of Revenue (FBR) tax collection rose 9.7 percent to Rs11.23 trillion during July-May, while government expenditures declined by 9.9 percent through tighter fiscal management.
External sector remains stable
The report showed continued improvement in the external sector, with the current account recording a surplus of $255 million during July-May FY2026.
Workers’ remittances increased by 9.2 percent to $38.1 billion, including a record $4.3 billion received in May 2026 alone. Pakistan’s foreign exchange reserves reached $21.5 billion as of June 19, 2026.
Manufacturing and stock market rebound
Large-Scale Manufacturing (LSM) rebounded strongly, posting 6.4 percent growth during July-April FY2026 after contracting 1.5 percent in the previous year. The recovery was led by the automobile, food, apparel and petroleum sectors, with vehicle production recording notable gains.
Pakistan’s stock market also delivered one of its strongest performances in recent years. The benchmark KSE-100 Index climbed by more than 10,000 points during May, closing near the 174,000-point level, making it one of Asia’s best-performing equity markets.
Positive outlook for FY2027
The Finance Division projected a positive outlook for FY2027, with agriculture expected to grow by 3.6 percent, supported by improved availability of farm inputs, mechanization and higher agricultural credit, which increased 18.9 percent to Rs2.46 trillion.
The report said investor confidence strengthened due to Pakistan’s continued engagement with the International Monetary Fund (IMF), sovereign credit rating upgrades and successful international bond issuances, including Eurobond and Panda Bond offerings.
The government’s FY2026-27 budget focuses on export-led growth, fiscal discipline, tax relief and social protection, while the State Bank of Pakistan’s Monetary Policy Committee maintained the policy rate at 11.5 percent in June.
The report noted that easing geopolitical tensions, particularly following the US-Iran ceasefire, along with lower global oil prices and continued structural reforms, are expected to support stronger economic growth in FY2027 while maintaining macroeconomic stability.
Despite a positive outlook, the Finance Division cautioned that global risks, including commodity price fluctuations and international trade uncertainties, continue to pose challenges. However, it concluded that prudent fiscal management and ongoing reforms have placed Pakistan’s economy on a firmer path heading into the new fiscal year.
