By Farooq Awan

The government believes Pakistan has strengthened its ability to withstand external economic shocks through improved macroeconomic stability, higher foreign exchange reserves, fiscal consolidation and continued structural reforms, although geopolitical tensions and global uncertainties remain significant risks.

According to the Finance Division's Monthly Economic Update & Outlook (July 2026), Pakistan entered FY2026-27 with stronger macroeconomic fundamentals following significant stabilisation gains achieved during the previous fiscal year. The report says improved fiscal performance, easing inflation, stronger external accounts and the rebuilding of foreign exchange reserves have enhanced the economy's resilience.

The report states that despite renewed geopolitical tensions in the Middle East and uncertainty in global commodity markets, Pakistan is better positioned to absorb external shocks because of stronger policy buffers and prudent macroeconomic management. It notes that continued vigilance will nevertheless remain essential to preserve economic stability in the face of evolving global risks.

According to the document, the country's fiscal position strengthened considerably during FY2025-26. The fiscal deficit narrowed to 3.7% of GDP during July-March from 5.6% a year earlier, while the primary surplus increased to 3.0% of GDP, supported by robust revenue growth and lower debt-servicing costs. These improvements have provided greater fiscal space to respond to future economic challenges.

The Finance Division also highlights notable improvements in the external sector. Record-high workers' remittances, higher services exports, stronger foreign direct investment and increased foreign exchange reserves helped maintain external stability despite a widening merchandise trade deficit driven by rising imports associated with economic recovery.

The report notes that the government's financial sector reforms are intended to further strengthen resilience by broadening financing sources and deepening domestic capital markets. During the year, the government launched the InvestPak digital investment platform, enabled retail investment in treasury bills through the JazzCash application and appointed international banking consortiums to support future sovereign bond issuances.

According to the document, Pakistan's improving macroeconomic position has also received international recognition. It notes that S&P Global Ratings upgraded the country's long-term sovereign credit rating from B- to B, citing stronger fiscal performance, improved institutional capacity, continued reforms and higher foreign exchange reserves.

The report adds that maintaining fiscal discipline, preserving price stability, strengthening external buffers and advancing structural reforms will remain central to the government's strategy for sustaining economic recovery. While external risks cannot be eliminated, the Finance Division believes Pakistan's stronger macroeconomic foundations have significantly improved its capacity to manage future economic shocks.

Credit: INP-WealthPk