By Abdul Ghani

Pakistan's economic outlook for FY2026-27 has improved as easing geopolitical tensions, moderating global oil prices and continued implementation of economic reforms are expected to strengthen growth while preserving macroeconomic stability, according to the Finance Division.

The Finance Division's Monthly Economic Update & Outlook (June 2026) states that with macroeconomic stabilisation largely achieved during FY2025-26, the economy is well-positioned to maintain its growth momentum in the coming fiscal year. The report attributes the positive outlook to improving macroeconomic fundamentals, continued expansion in large-scale manufacturing, resilience in agriculture, fiscal consolidation and a stable external account.

According to the report, the recent easing of geopolitical tensions following the Iran-US ceasefire has improved global market sentiment. As international crude oil prices have retreated from recent highs, Pakistan is expected to benefit through lower imported inflation, reduced fuel and transportation costs and a smaller oil import bill, all of which will support macroeconomic stability.

The report notes that prudent macroeconomic policies, consistent fiscal discipline and targeted support for productive sectors are expected to sustain economic growth while preserving financial stability. The government believes that ongoing structural reforms and responsible fiscal management will strengthen investor confidence and create a more favourable business environment.

According to the Finance Division, Pakistan's external sector outlook has also improved considerably. Record workers' remittances during May 2026 and continued expansion in information technology (IT) exports are expected to reinforce the balance of payments, strengthen foreign exchange reserves and enhance the country's resilience against external shocks.

The report states that lower international energy prices are likely to reduce inflationary pressures while improving the country's external account. Moderating oil prices are expected to ease the burden of energy imports, helping contain cost-push inflation and supporting domestic economic activity during FY2026-27.

On the global front, the report notes that the World Bank's latest Global Economic Prospects projects global economic growth of 2.5% in 2026. However, it cautions that downside risks persist, including commodity price volatility, trade policy uncertainty, geopolitical tensions and climate-related disruptions. Despite these risks, global economic recovery continued during May, supported by expanding manufacturing activity and resilient demand.

The report highlights that the J.P. Morgan Global Composite PMI Output Index remained stable at 51.8 during May, indicating continued expansion in global economic activity. Manufacturing led the recovery, supported by businesses advancing orders to guard against potential supply disruptions and future price increases, while the services sector also recorded modest improvement.

According to the Finance Division, global inflation trends have also become more favourable for oil-importing countries such as Pakistan. The FAO Food Price Index declined slightly during May, while the global energy price index fell sharply as Brent crude prices retreated with easing geopolitical risks. These developments are expected to provide additional relief to Pakistan's inflation and external financing position.

The report further notes that economic activity in Pakistan's major export markets remains broadly aligned with long-term growth trends, suggesting continued external demand for the country's exports. Together with ongoing domestic reforms and improving business confidence, these conditions are expected to support higher exports, stronger investment and sustained economic expansion.

According to the Finance Division, Pakistan enters FY2026-27 with stronger macroeconomic fundamentals, improved fiscal and external balances and a more stable investment climate than in recent years. The report concludes that continued reform implementation, favourable global energy trends and strengthening investor confidence are expected to support higher economic growth while maintaining macroeconomic stability in the year ahead.

Credit: INP-WealthPk