By Farooq Awan

Pakistan’s economy has entered a phase of relative stability with signs of strengthening growth momentum during the third quarter of FY2026, according to official data.

The “Monthly Economic Update & Outlook April 2026” released by the Finance Division and available with Wealth Pakistan indicates that macroeconomic stability has improved, supported by a recovery in key sectors and better external positioning.

The report highlights that the domestic economy showed continued progress, particularly with the manufacturing sector maintaining its growth trajectory. At the same time, the external sector recorded three consecutive monthly current account surpluses, supported by strong inflows of workers’ remittances and rising IT exports.

The document shows that inflation increased during the period but remained within the annual target range. Fiscal management also improved, contributing to a stronger overall macroeconomic framework.

The report notes that prudent fiscal measures helped improve the fiscal position, while the timely repayment of Eurobonds and the achievement of a staff-level agreement with the International Monetary Fund reinforced external credibility. Pakistan’s sovereign rating of B- with a stable outlook further reflects continued reform efforts and improved investor confidence.

On the production side, the manufacturing sector remained a key contributor to economic activity. Large-Scale Manufacturing (LSM) recorded a growth of 5.9% during July-February FY2026, compared to a contraction of 1.8% during the same period last year. The growth was broad-based, with 15 out of 22 sectors recording positive performance.

Key contributors to industrial growth included automobiles, wearing apparel, food, and coke and petroleum products. The automobile sector, in particular, showed strong performance, supported by a significant increase in the production of trucks and buses, cars, and other vehicle categories.

The external sector also showed improvement despite a widening trade gap. The report indicates that remittances continued to play a key role in supporting the balance of payments, while IT exports contributed to growth in the services sector.

Fiscal indicators further reflect stabilization. During July-February FY2026, the fiscal deficit narrowed significantly to 0.1% of GDP compared to 2.2% in the same period last year. At the same time, net federal revenues increased, supported by growth in both tax and non-tax collections.

Expenditure management also contributed to fiscal improvement. Total federal expenditure declined during the period, primarily due to a reduction in current expenditure, particularly markup payments. Development spending, however, continued to increase, indicating ongoing investment in public sector projects.

The report also highlights improvements in monetary indicators. Money supply growth remained moderate, while private sector borrowing increased, reflecting stronger credit demand in the economy.

Despite these positive developments, the document points to emerging risks. Ongoing geopolitical tensions, particularly in the Middle East, have introduced uncertainty into the economic outlook, mainly through potential increases in global energy prices and supply chain disruptions.

The report indicates that while these risks remain, Pakistan’s economy is better positioned to manage external shocks compared to previous periods, supported by improved macroeconomic fundamentals and policy measures.

The data reflects a combination of stabilization and gradual recovery across key sectors of the economy during FY2026, as captured in the official report.

Credit: INP-WealthPk