By Farooq Awan

Pakistan is expected to enter FY2026-27 with stronger economic momentum as easing geopolitical tensions, moderating global energy prices and continued structural reforms create a more supportive environment for sustainable growth, according to the Finance Division.

The Finance Division's Monthly Economic Update & Outlook (June 2026) states that macroeconomic stabilisation achieved during FY2025-26 has laid the foundation for higher growth in the coming fiscal year. Continued expansion in manufacturing, resilience in agriculture, improving fiscal discipline and a stable external sector are expected to support the economy's growth trajectory.

According to the report, the recent easing of geopolitical tensions following the de-escalation between Iran and the United States has improved global market sentiment. Declining international crude oil prices are expected to reduce Pakistan's oil import bill, ease inflationary pressures and improve the country's balance of payments during FY2026-27.

The report notes that prudent macroeconomic management will remain central to sustaining economic recovery. Continued fiscal consolidation, targeted support for productive sectors and implementation of structural reforms are expected to strengthen investor confidence while preserving macroeconomic stability.

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

The report highlights that lower international energy prices are likely to reduce imported inflation and support domestic economic activity. Falling fuel costs are expected to lower transportation and production expenses, providing relief to businesses and consumers while supporting broader economic expansion.

On the global front, the report notes that the World Bank's latest Global Economic Prospects projects world economic growth of 2.5% in 2026. Although global risks remain—including geopolitical tensions, trade policy uncertainty, commodity price volatility and climate-related disruptions—the report says the global economy continued to recover during May, led by manufacturing activity and resilient business demand.

According to the document, the J.P. Morgan Global Composite PMI Output Index remained stable at 51.8 in May, indicating continued expansion in global economic activity. Meanwhile, economic activity in Pakistan's major export markets remained broadly aligned with long-term trends, suggesting continued external demand for Pakistani exports.

The report also points to improving global inflation trends. The FAO Food Price Index declined slightly during May, while international energy prices fell as geopolitical risks eased. For Pakistan, these developments are expected to reduce imported inflation and support macroeconomic stability in the coming fiscal year.

According to the Finance Division, stronger macroeconomic fundamentals, improving business confidence and continued reform implementation are expected to reinforce Pakistan's economic recovery during FY2026-27. The report concludes that lower global energy prices, stable external accounts and sustained policy reforms provide a favourable foundation for stronger, more resilient and inclusive economic growth.

Credit: INP-WealthPk