By Moaaz Manzoor

Pakistan’s economy expanded by 3.7 percent during FY2025-26, with stronger activity in the industrial and services sectors helping sustain recovery momentum despite continued challenges in agriculture and broader external vulnerabilities, according to data released by the State Bank of Pakistan (SBP).

The latest figures showed that Pakistan’s real gross domestic product (GDP) at constant basic prices of 2015-16 increased to Rs42.56 trillion in FY2025-26 from Rs41.04 trillion in FY2024-25. The updated data indicated that economic growth accelerated from 3.18 percent in FY2024-25 to 3.7 percent during FY2025-26.

The latest expansion also represented an improvement over the 2.62 percent growth recorded in FY2023-24, reflecting a gradual recovery in domestic economic activity following earlier periods of macroeconomic stress.

The commodity-producing sector remained an important contributor to overall economic growth during FY2025-26. According to the data, the sector expanded to Rs17.70 trillion during the fiscal year from Rs17.15 trillion in FY2024-25.

Within this category, the agriculture sector increased to Rs9.98 trillion from Rs9.70 trillion a year earlier, while the industrial sector rose to Rs7.72 trillion in FY2025-26 from Rs7.46 trillion in FY2024-25.

The improvement in industrial activity coincided with stronger manufacturing output, increased construction activity, and relatively stable macroeconomic conditions during much of the fiscal year.

Large-scale manufacturing recorded notable improvement after a prolonged period of weakness, supported by higher production in automobiles, petroleum products, electrical equipment, and food manufacturing. Construction-related activity also remained relatively strong due to increased public- and private-sector spending.

Meanwhile, the services sector continued to account for the largest share of the economy. The sector expanded to Rs24.87 trillion during FY2025-26 from Rs23.89 trillion in FY2024-25.

The sector’s growth reflected improved performance in wholesale and retail trade, information and communication, transport, education, healthcare, and public administration activities.

The latest data also showed that Pakistan’s economy has gradually regained momentum after the slowdown in earlier years. GDP growth declined sharply to negative 0.21 percent in FY2023 amid severe macroeconomic imbalances, inflationary pressures, flood-related disruptions, and external-sector stress before recovering to 2.62 percent in FY2024, 3.18 percent in FY2025, and 3.7 percent in FY2026.

Although the recovery remains moderate compared with earlier high-growth periods, the latest figures suggest improving economic stability during FY2025-26. Lower inflation, easing interest rates, stronger remittance inflows, and relative exchange-rate stability supported broader economic activity during the fiscal year.

However, challenges continue to persist across several sectors of the economy.

Agriculture remains vulnerable to climate-related disruptions, while external risks associated with oil prices and geopolitical developments continue to create uncertainty for inflation and the balance of payments.

At the same time, high public debt levels, limited fiscal space, and structural weaknesses in exports and productivity continue to affect long-term growth prospects.

The latest GDP data nevertheless indicate that Pakistan’s economy maintained its gradual recovery momentum during FY2025-26, supported primarily by stronger performance in industrial and services activities.

Credit: INP-WealthPk