EDITORIAL: The National Accounts Committee (NAC) earlier this week approved GDP growth of 3.71 percent in 1QFY26 and revised upward the last quarter of FY25 growth to 6.17 percent.
The numbers are higher than expected, but this is not a surprise for many, as the PML-N is perhaps on track with its tradition of inflating growth figures.
A few months back, government officials were claiming higher losses to the country’s economy owing to floods in an attempt to fetch donor money and secure relaxed policies from the IMF.
Now that this ploy did not work, growth appears to be overstated. For example, one of the worst impacts of the floods was on livestock, yet the sector has reportedly grown by 6.3 percent, possibly the highest rate in history.
If we look at GDP growth from the expenditure approach C + G + I + (X–M), it appears that more than 100 percent of growth is coming from consumption, as net exports remain deeply negative and investment is very weak.
The government may find it difficult to reconcile these numbers at the end of the year. Overall, the reported 3.7 percent growth comprises 2.9 percent growth in agriculture, 9.4 percent growth in industry, while services grew by 2.4 percent.
Within agriculture, crops are down 3.7 percent, as important crops, other crops, and cotton ginning are all in the red.
Despite this, agriculture posted a growth of 2.9 percent, largely due to an exceptional performance in livestock. This is counter-intuitive, as rising beef and mutton prices suggest stress in livestock supply and slaughtering activity. However, the reported growth figures present a quite different picture.
The most surprising number is the 9.4 percent industrial growth, when LSM growth stands at only 4.1 percent. There has indeed been a rebound in certain industries — dominated by automobiles — but this is already well captured in LSM data.
One may question how small-scale manufacturing (SSM) growth of 10.2 percent is more than double that of LSM. This is counter-intuitive, as there is usually a high correlation between LSM and SSM. Similarly, slaughtering growth of 7.5 percent does not align with the behaviour of poultry and red meat markets.
The highest reported growth is in electricity, gas, and water supply, up 25.5 percent, following growth of over 100 percent in the previous quarter. Electricity consumption in 1QFY26 increased by only 1 percent and the higher growth in this subsector is largely due to increased subsidies, which merely plug circular debt. This is a methodological issue that is inflating growth numbers.
The second-largest increase is in construction at 21.0 percent. Double-digit growth here is plausible, as cement production rose by 15 percent. While still on the higher side, this does not appear to be grossly exaggerated. Services sector growth of 2.35 percent presents a more realistic picture. There is a general pickup in economic demand, visible in LSM recovery and growth in wholesale and retail trade, which rose 3.1 percent. However, double-digit growth in finance and insurance requires explanation, as do some other sub-sectors within services.
In a nutshell, the economy is recovering, but not at the pace suggested by the published numbers. The recovery is slow, and rightly so, as structural flaws within the economic framework do not allow growth beyond 3 to 4 percent. This patchwork may produce better numbers on paper, but it will not result in the much-needed creation of employment. If the government continues to exaggerate figures, it risks losing credibility. It would be better to remain realistic, as that would keep policymakers on their toes and help instill much-needed reforms.
Copyright Business Recorder, 2026
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