By Ayesha Saba

Pakistan's economy maintained its stabilization momentum during FY2025-26, recording a growth rate of 3.7% despite challenges posed by early-year floods and escalating tensions in the Middle East, according to the Ministry of Planning, Development and Special Initiatives' Monthly Development Update (June 2026).

The report states that the economy expanded from 3.2% in the previous fiscal year to 3.7%, supported primarily by stronger performance in the agriculture and services sectors. Agriculture grew by 2.9%, compared with 1.5% a year earlier, while services accelerated to 4.1% from 3.1%, reflecting improving domestic economic activity. Although industrial growth moderated to 3.5% from 5.6% in the previous year, the manufacturing sector showed clear signs of recovery during the fiscal year.

According to the report, Large-Scale Manufacturing (LSM) posted a robust 6.4% growth during July-April FY2025-26, reversing the 1.5% contraction recorded during the same period last year. The turnaround was broad-based, driven by higher production of automobiles, petroleum products, electrical equipment, furniture, food products, beverages and apparel, indicating renewed industrial activity across multiple sectors.

The construction sector also showed encouraging signs of recovery. Cement dispatches increased by 6.4% during July-May FY2025-26, reflecting stronger construction activity and improving domestic demand supported by ongoing public and private sector investment.

Inflation remained relatively contained during most of the fiscal year, although price pressures intensified in recent months. Average inflation during July-May FY2025-26 stood at 6.7%, compared with 4.6% in the corresponding period of the previous year. However, monthly inflation accelerated sharply, with the Consumer Price Index (CPI) reaching 11.7% in May 2026, up from 3.5% in May 2025. The increase was mainly attributed to higher transport fares, fuel prices, electricity tariffs and food prices.

The external sector presented a mixed picture. While the overall exports of goods and services remained almost unchanged at $37.4 billion during July-May FY2025-26, compared with $37.5 billion a year earlier, services exports recorded strong growth of 17.4%. The increase was driven by higher earnings from information and communication technology (ICT), freelance services, financial services and transport services. As services imports also increased, the services trade deficit nevertheless narrowed by 23.9%, reflecting improved export performance in the sector.

The report notes that the goods trade balance remained under pressure during the period. Goods exports declined by 5.0%, mainly due to lower food and petroleum exports, while imports increased by 8.0% amid stronger domestic demand. Despite this, textile exports continued to demonstrate resilience and remained an important contributor to Pakistan's export earnings. Overall imports of goods and services reached $69.6 billion during July-May FY2025-26, representing a 7.8% increase over the previous year.

Workers' remittances continued to provide strong support to the economy. According to the report, remittances increased by 9.2% to $38.1 billion during July-May FY2025-26 from $34.9 billion during the same period last year. The growth was attributed to exchange rate stability, increased overseas employment and improving economic conditions in major destination countries for Pakistani workers.

Fiscal performance also remained robust during the period. The Federal Board of Revenue (FBR) collected Rs11.2 trillion in taxes during July-May FY2025-26, marking a 9.7% increase over the previous year's collection of Rs10.2 trillion. The report attributes the improvement to stronger tax compliance, administrative reforms and expanding economic activity.

According to the Ministry of Planning, Pakistan's economic performance remained resilient despite significant external and domestic challenges, including climate-related disruptions and geopolitical tensions. The report says sustained remittance inflows, recovering industrial activity, stronger agricultural output, improved fiscal management and the continued implementation of development programmes helped reinforce macroeconomic stability during FY2025-26. It adds that the overall outlook remains positive, supported by strengthening economic activity and continued progress on the government's development agenda.

Credit: INP-WealthPk