Abdul Ghani

Pakistan completed the first half of fiscal year 2026 with sustained macroeconomic stability, marked by easing inflation, a rebound in large-scale manufacturing, strengthening foreign exchange reserves, and improved fiscal discipline, according to the latest Monthly Economic Update and Outlook issued by the Finance Division.

Official data show that headline inflation declined to 5.6 percent year-on-year in December 2025, down from 6.1 percent in the previous month, while average inflation during Jul–Dec FY2026 stood at 5.2 percent compared to 7.2 percent in the same period last year. The moderation in prices, supported by a decline in perishable food inflation and improved supply conditions, has helped stabilise purchasing power and reduce cost pressures across the economy.

Economic activity gathered momentum during the first half of the fiscal year, particularly in the industrial sector. Large-scale manufacturing registered a growth of 6.0 percent during Jul–Nov FY2026, reaching its highest Quantum Index of Manufacturing level since FY2016. The recovery in industrial output has been supported by improved demand conditions, easing financial constraints, and better performance in key sectors such as automobiles, textiles, food and beverages, and petroleum products.

On the external front, Pakistan’s foreign exchange reserves rose to $21.3 billion as of January 16, 2026, including $16.1 billion held by the State Bank of Pakistan. The exchange rate remained broadly stable during the period, reflecting improved market confidence and better external account management. Robust workers’ remittances, which increased by 10.6 percent to $19.7 billion during Jul–Dec FY2026, played a critical role in supporting the balance of payments amid rising import demand.

Fiscal indicators also showed notable improvement in the first half of the fiscal year. The government recorded a consolidated fiscal surplus of 0.8 percent of GDP during Jul–Nov FY2026, compared to a deficit of 0.04 percent in the same period last year. A primary surplus of 2.8 percent of GDP was achieved, reflecting higher revenues and a significant reduction in mark-up payments. Gross federal revenues increased by 7.8 percent, supported by growth in both tax and non-tax receipts, while total expenditure declined by 6.2 percent due mainly to lower debt servicing costs.

The Finance Division noted that improved public financial management and fiscal discipline have helped create space for development spending, which rose modestly during the period. At the same time, the pickup in economic activity has begun to translate into stronger private sector participation, with money supply expanding by 3.7 percent during Jul–Dec FY2026 compared to a contraction in the same period last year.

Investor sentiment remained positive throughout the period, as reflected in the strong performance of the Pakistan Stock Exchange. The benchmark KSE-100 Index continued its upward trajectory, ranking among the world’s top-performing equity markets and signalling growing confidence in the country’s macroeconomic direction.

Looking ahead, the Finance Division said the economy is well positioned to sustain its growth momentum for the remainder of FY2026, supported by recovering industrial activity, easing inflationary pressures, and ongoing economic governance reforms aimed at strengthening institutions and enabling private sector–led growth. Inflation is expected to remain within the 5 to 6 percent range in the near term, while steady remittance inflows and improving services exports are projected to help cushion external pressures.

Credit: INP-WealthPk