By Farooq Awan

Pakistan's economy expanded to $452.1 billion in FY2025-26, while real GDP growth accelerated to 3.7%, the highest in four years, reflecting improving macroeconomic stability, broad-based economic recovery and stronger investor confidence, according to the Finance Division's Monthly Economic Update & Outlook (June 2026).

The report states that the economy maintained its recovery despite flood-related disruptions early in the fiscal year and volatility in global commodity markets. Growth remained broad-based across agriculture, industry and services, while average inflation stayed within the government's target range in single digits for most of the fiscal year, helping preserve macroeconomic stability.

According to the Finance Division, fiscal performance also improved significantly during the year. Effective expenditure management, stronger revenue mobilisation and provincial fiscal surpluses helped reduce the fiscal deficit, while the country achieved a primary surplus of 3.5% of GDP during July-April FY2025-26. These developments reinforced the government's fiscal consolidation efforts and strengthened the overall macroeconomic framework.

The external sector also remained resilient. The report notes that Pakistan recorded a current account surplus of $255 million during July-May FY2025-26, supported by sustained growth in workers' remittances, rising information technology (IT) exports, a broadly stable exchange rate and improved foreign exchange reserves. These factors helped strengthen the country's external position despite an increase in imports.

Investor confidence strengthened considerably during the fiscal year. According to the report, the government's continued implementation of the International Monetary Fund's Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) programmes, together with sovereign rating upgrades by Fitch and Moody's, has improved market sentiment and enhanced Pakistan's access to international capital markets.

The report highlights that these improvements enabled Pakistan to return to the international bond market through the issuance of a Eurobond after a gap of four years, while the successful launch of the country's first Panda Bond further diversified external financing sources. At the same time, the Pakistan Stock Exchange (PSX) recorded one of its strongest performances, with the KSE-100 Index reaching an all-time high and ranking among the fastest-growing equity markets in Asia.

According to the Finance Division, the government has sought to build on these gains through the Budget 2026-27, which focuses on export-led growth, taxpayer relief, enhanced social protection and fiscal discipline. The budget also aims to improve business competitiveness, encourage investment, broaden the tax base, advance energy sector reforms and create a more supportive environment for sustainable and inclusive economic growth.

The report says Pakistan's economic outlook for FY2026-27 is expected to improve further as geopolitical tensions ease following the US-Iran ceasefire, helping stabilise global commodity markets and strengthen business confidence. Continued implementation of structural reforms, together with a more conducive investment environment, is expected to support higher growth while preserving macroeconomic stability.

According to the Finance Division, the economy is entering the new fiscal year on a stronger footing, supported by improving macroeconomic fundamentals, sustained reform momentum and increasing investor confidence. The report concludes that these factors are expected to reinforce Pakistan's transition towards stronger, more resilient and sustainable economic growth.

Credit: INP-WealthPk