Pakistan Outlook-2026

In certain areas, there are clear signs of substantial growth that have contributed to the recovery of Pakistan’s economy. A significant boost comes from the IMF’s timely approval of fund releases, facilitating negotiations and borrowing from other donors to address financial shortfalls.

The efforts of fiscal and monetary authorities to implement necessary measures aimed at reducing inflation towards targeted levels are noteworthy, facilitating the State Bank of Pakistan (SBP) to lower its policy rate nearly by half to 10.50 percent.

Remittances also play a vital role, showing consistent and remarkable growth even in challenging times. It is promising to see an increase in the State Bank of Pakistan’s net reserves this fiscal year, with expectations that this upward trend will continue through the year’s end.

Moreover, growth in Pakistan’s information technology (IT) sector, with the potential to exceed USD 5 billion, is particularly encouraging. However, this is an area where the government must develop more favourable and effective policies to sustain growth.

A crucial aspect of supporting the IT sector’s growth is its nature as a service provider, unlike other exporters, it does not require significant foreign currency for raw materials. While the textile sector has valid reasons to advocate for lower energy costs, rebates, and currency depreciation, data over the past two decades reveals that the costs remain excessively high with minimal returns.

The depreciation of the Pakistani Rupee against the US Dollar has led to skyrocketing prices for basic necessities, with inflation severely impacting citizens.

The low tax-to-GDP ratio is an indicator of weaker economic performance and needs to be increased by 5 percent to 10 percent to relieve pressure on debt financing, facilitate borrowing, and provide the government with more room for spending.

Another metric to monitor growth is the advances-to-deposits ratio (ADR) of banks. Rather than looking solely at year-end figures, which can be influenced by efforts to create healthy balance sheets, it is more insightful to analyze the monthly data released by the State Bank of Pakistan to better understand real progress and growth.

Pakistan has the potential for significant advancement by reducing bank investments in government securities to around Rs 6 trillion.

Currently, the Open Market Operation (OMO) amount is Rs 12.743 trillion (Conventional Rs 12.370 trillion and Islamic Rs 373 billion). Instead of relying only on rice and the unpredictable yields of cotton, sugarcane, and wheat, I strongly advocate for the agricultural sector. By offering ample of credit to farmers and the agriculture industry to upgrade their practices, we can turn farming into a lucrative export market.

The economy requires macroeconomic growth, as microeconomic improvements alone will not satisfy the country’s demands. Sustaining the current pace of productivity and growth is essential.

Meanwhile, if pressure on the balance of payments eases and the current account balances remain stable, the Pakistani Rupee is likely to maintain its stability.

The stance of the SBP’s policy rate will continue to depend on debt levels, oil prices, and the current account balance, all of which appear manageable.

However, it is important to recognize that natural disasters, which are beyond human control, can disrupt the growth cycle, as evidenced by this year’s floods affecting rice, cotton, maize, sugarcane, and more.

Challenges in the agricultural sector are a significant contributor to Pakistan’s economic slowdown, which is caused by the floods.

With the right policies in place, the economy can always recover, but it requires genuine intention and purpose to ensure future prosperity.

GLOBAL OUTLOOK-2026

In 2025, the geopolitical crisis and tariff-related issues in the US largely influenced global financial markets, leading to fluctuations and inconsistencies in economic forecasts.

The tariff situation has impeded global growth, a trend that may continue into the next year unless the US government can swiftly resolve it.

Despite lower average oil prices in 2025, inflation pressures remained elevated, largely due to the tariffs.

Sluggish economic growth, tighter liquidity, and changing demand have weakened the job market, contributing to rising unemployment which, in turn, fosters a weak and uncertain macroeconomic environment. This scenario is likely to exert additional pressure on US import prices, increasing operating costs and potentially exacerbating job market challenges. A significant point regarding the tariffs is the upcoming court ruling, expected in the new year, which could have profound consequences for both the US and the global economy. For instance, if the court rules against the government’s stance, it could prevent the collection of tariffs and necessitate reimbursement of previously collected revenues.

At the current rate of economic expansion and forecasts, it is anticipated that the Federal Reserve will implement two interest rate cuts in the upcoming year. Nevertheless, the ultimate decision regarding the number of rate cuts will hinge on US economic indicators and the newly appointed voting members who will take over from the outgoing Fed officials.

Tariff-related matters and their influence on inflation, along with the supply chain of essential goods and import expenses, play a significant role. Geopolitical concerns and oil prices also contribute to the factors affecting global economic growth.

By 2026, clearer signs of the impact of tariffs are expected, prompting impacted nations to recalibrate their structural standards and make necessary fiscal adjustments.

There will be a strong emphasis on artificial intelligence (AI), as the competition to achieve peak technological innovation and progress intensifies, requiring substantial investment in technology development.

Leveraging AI, nations will aim to create new models and boost business activities across sectors like finance, automation, healthcare, defence, and education, with a significant focus on digitisation.

In light of recent challenges, a global emphasis will also be placed on trade and tariffs, which may steer countries toward protectionist policies. From a national security perspective, special attention will be directed toward rare earth minerals and resources. The strategic focus is shifting from mining and extraction to enhancing manufacturing and development capabilities.

GOLD @ USD4532

Before I share my update for next year, I am pleased to report that my revised gold target for December 31, 2025, of USD 4500-4600 has been achieved. On October 13, 2025, I predicted in Business Recorder, “At this current rate, gold could reach between USD 5,200 and USD 5,500 by December 2026.”

I will maintain my December 2026 target, but for gold to reach that level, it must surpass USD 4880.

Interest from gold buyers will persist, with central banks playing a significant role by increasing their gold reserves. Given their focus on building reserves, central banks are unlikely to sell gold unless faced with a balance of payments crisis. I believe the buying power of the trio—China, Russia, and Iran—is unstoppable.

Countries like Saudi Arabia, Turkey, and others in Asia will likely follow the lead, especially since the US Dollar is becoming more contentious.

The Eurozone’s ongoing political and economic issues have made the European currency less appealing, while interest in the Pound Sterling is limited.

Meanwhile, the Chinese Yuan is gradually increasing its global presence, though advanced economies have reservations regarding their trading policies with China.

These factors will likely motivate more investors to join the rush to buy gold. Corrections and dips in the market tend to trigger additional purchasing by global investors.

Geopolitical and trade tensions will frequently create anxiety, prompting various sources to seek gold.

Looking ahead, breaking the support level at USD 4220 could risk a decline to USD 3920. However, any downward movement would present a buying opportunity, depending on market conditions and trends. Conversely, if gold moves above USD 4880, it could test the USD 5200-5500 range.

EURO @ 1.1775— The overall weakness of the US Dollar combined with modest growth expectations in the Eurozone is bolstering the Euro.

Present inflation rates are steady, indicating that easing of interest rates is not necessary at this time.

Nevertheless, price pressures may escalate at certain points. As a result, the Euro could potentially surpass 1.2080, aiming for targets of 1.2350 or 1.2470. However, a drop below 1.1410 could lead to a decline toward 1.1110.

GBP @ 1.3498— Pound Sterling, although it has recently displayed some signs of improvement, remains vulnerable to political instability that could arise for any reason. On the downside, there is solid support at 1.3005 and 1.2750. To test and exceed the 1.4010 level, a rise above 1.3850 is necessary on the upside.

JPY @ 156.57— Some fluctuations are anticipated in the USD/JPY pair. At some point, there may be conflicting views between fiscal policymakers and Bank of Japan officials regarding the issue of interest rate hikes.

The newly-appointed Prime Minister is pro-growth and has a dovish stance, which favors lower interest rates and calls for substantial liquidity to stimulate economic activity. Although Japanese economic growth has yet to gain momentum, inflationary pressures are on the rise.

The pair is facing pressure, but if it manages to remain above the support level of 152.50, it could advance toward 158.80. A breakout above this level may lead to testing the 161-163 range. Conversely, a break below the support level could drive it down to 148.80 or 146.50.

Copyright Business Recorder, 2025