EDITORIAL: The 3.7 percent growth for 2025-26 in the Economic Survey, limited to nine months of data (July-March), is even more of a projection in the current year, given that the ongoing Middle East conflict’s duration has surpassed all earlier predictions, though the International Monetary Fund (IMF) team concluded in its 15 May third review documents that the fall-out of the conflict has been “contained.”
Not contained was headline inflation that rose to 10.9 percent in April this year, the trade deficit that widened to 5.6 billion dollars in April 2026 against April 2025 and remittance inflows were down by 7.5 percent in March this year compared to March last year. And neither was current expenditure contained as unbudgeted and untargeted subsidies to the general public were extended in the aftermath of the supply disruptions due to the Middle East conflict that, in turn, raised non-interest current expenditure April to June 2026. The IMF has reported that Pakistan has agreed not to extend these subsidies as they are distortive in essence.
The Survey has noted, among other things, a decline in current expenditure by 4.2 percent over the same period last year. This was mainly attributable to transforming short-term debt secured at higher interest rates (including the time when the policy rate was nearing 22 percent) with longer term debt at lower rates. However, this did not imply that reliance on borrowing declined and data uploaded on the websites of State Bank of Pakistan (SBP), Pakistan Bureau of Statistics (PBS) and Finance Division (FD) indicates that July-May 2025-26 the government borrowed 3.5 trillion rupees from commercial banks – an amount that in all probability excludes the 1.25 trillion rupees borrowed for the retirement of the energy sector circular debt by citing it as a one-off measure.
In total, the government borrowed 4.75 trillion from commercial banks till May this year, with one month remaining till the end of the fiscal year, while credit to the private sector 1 July 2025 to 3 April 2026 was 864.3 billion rupees (average of about 96 billion rupees per month). Thus total credit to the private sector July to May this year can be projected at a maximum of 1.05 trillion rupees. Non-interest current expenditure, however, grew by 18 percent July-March due to higher defence outlay and grants mainly owing to a rise in operational costs due to an uptick in terror attacks from across the border while additional grants are not quantified. The increased borrowing by the government was not allocated for development though the Survey notes a rise of 26.8 percent. However, data from the Planning Ministry website indicates that 633.34 billion rupees was authorized July-April 2026 while actual releases stood at 469.85 billion rupees.
The Survey noted improved performance of the Federal Board of Revenue (FBR) with the Finance Minister in the traditional Survey presentation briefing noting that enhanced revenue generation from audit of sales tax on sugar and cement at the factory level (an indirect tax which is passed onto the consumers in its entirety). One reason cited for the projected 868 billion-rupee FBR shortfall July-May 2026 from the downward revised target of 12.09 trillion is the lower GDP growth rate than the 4.2 percent projected in the budget which, the Finance Minister pointed out, was compromised due to three exogenous factors: the conflict, the floods in September and the Trump tariffs.
Non-tax revenue rose due largely to the petroleum levy and SBP profits. Manufacturing sector grew by 6.6 percent, largely supported by large-scale manufacturing sector at 6.1 percent; however, total investment was 14.4 percent of GDP this year, precisely the same rate as last year, while national savings declined from 14.9 percent to 14.1 percent.
From the foregoing, it can be safely deduced that the government was expecting a growth rate of 4 percent or higher and its expectation did not materialise. The economy seems to have performed not too poorly if one takes into account the sheer scale of challenges particularly the ongoing Iran war, the 2025 Pakistan floods, and the confusion caused by the US tariffs that stemmed from transactional trade policies.
Copyright Business Recorder, 2026
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