By Farooq Awan

The Pakistani government expects the country's economic recovery to continue during FY2026-27, supported by improving macroeconomic fundamentals, easing inflation, stronger external buffers and sustained reform efforts, although global uncertainties and regional geopolitical tensions remain key risks to the outlook.

According to the Finance Division's Monthly Economic Update & Outlook (July 2026), the economy entered FY2026-27 on a stronger footing after achieving significant macroeconomic stabilisation during the previous fiscal year. The report cites improved fiscal performance, declining inflation, stronger foreign exchange reserves, record IT exports and a broadly balanced external sector as key factors underpinning the recovery.

The report states that agricultural activity is expected to remain resilient, supported by higher agricultural credit disbursement, increased mechanisation and improved availability of farm inputs. Industrial performance is also projected to strengthen as easing financial conditions, improving business confidence and stronger domestic demand support manufacturing activity.

According to the document, the services sector is also expected to drive growth, backed by continued expansion in information technology exports, financial services and domestic economic activity. The Finance Division says ongoing structural reforms and improvements in the investment climate are expected to reinforce growth momentum during the current fiscal year.

The report notes that inflation has eased considerably following coordinated fiscal and monetary policies, providing greater stability for households and businesses. Improved fiscal discipline, stronger revenue mobilisation and prudent debt management have also enhanced macroeconomic stability, while higher foreign exchange reserves have strengthened the country's capacity to manage external shocks.

According to the Finance Division, recent financial sector reforms are expected to support investment and capital market development. Measures introduced during the year include launching the InvestPak digital investment platform, enabling retail access to government Treasury bills through the JazzCash application, and appointing international banking consortiums for future sovereign bond issuances. These initiatives are intended to broaden the investor base and strengthen Pakistan's financial markets.

The document cautions, however, that external challenges continue to pose risks to the economic outlook. It identifies geopolitical tensions in the Middle East, volatility in global commodity prices, disruptions to international trade and climate-related risks affecting agriculture as factors that could influence economic performance during FY2026-27.

The report concludes that Pakistan is better positioned to sustain economic recovery than in recent years, owing to stronger macroeconomic fundamentals and continued implementation of structural reforms. It says maintaining fiscal discipline, preserving price stability, strengthening external buffers and advancing reforms will remain essential for sustaining growth and enhancing resilience against external shocks.

Credit: INP-WealthPk