FY26 Economic Survey: Economy remains fragile despite recovery claims
ISLAMABAD: Despite claims of notable stabilization, Pakistan’s economy in FY2025–26 remains fundamentally fragile, with underlying vulnerabilities masked by short-term gains and favorable external inflows.
According to Economic Survey (July-April) 2025-26, expected to be unveiled on Thursday (June 11) by Finance Minister Senator Muhammad Aurangzeb, the ongoing conflict in the Middle East has emerged as a significant external risk to both the global economy and emerging economies. Before the conflict, the IMF had projected global growth of 3.3% in 2026 and 3.2% in 2027.
However, the IMF revised its growth forecasts downward due to conflict and projected global growth of 3.1% in 2026, followed by a modest recovery to 3.2% in 2027.
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Emerging markets and middle-income economies are projected to rebound from 3.8% in 2026 to 4.1% in 2027, while low-income developing countries are expected to accelerate from 4.8% to 4.9% over the same period. Under a moderate conflict scenario, assuming an early resolution, the IMF projects that emerging and developing economies will remain relatively resilient, supported by robust domestic demand driven by a growing middle class and sustained investment in technology and infrastructure.
Following the outbreak of the conflict in late February 2026, global oil prices surged sharply from approximately 72 per barrel (pre-conflict) to a peak of nearly USD120 per barrel. In Pakistan, this external price shock resurfaced inflationary pressures. Average inflation during July–April FY2025-26 rose to 6.2%, compared to 4.7% in the same period of the previous fiscal year. More notably, monthly inflation rose to 10.9% in April 2026 compared to 0.3% in April 2025. In response, the National Price Monitoring Committee (NPMC) effectively managed these growing inflationary pressures through weekly monitoring of essential item prices.
Pakistan’s GDP growth in FY2025–26 rose to 3.7%, up from 3.2% in the previous fiscal year, reflecting broad-based improvements across agriculture, industry, and services. LSM showed a notable turnaround, posting growth of 6.1% in FY2025–26 compared to a contraction of 0.7% in FY2024–25. On the external front, weakening exports and a recovery in import demand led to a widening of the trade deficit. However, robust remittance inflows and growing services exports helped contain pressures on the external account, supporting the balance of payments. The resulting improvement in foreign exchange reserves contributed to exchange rate stability, while continued fiscal discipline and prudent macroeconomic management reinforced overall economic stability.
Sectoral performance during 2025-26
Agriculture: The agriculture sector exhibited moderate improvement during FY2025-26 and recorded a growth of 2.9%, with important crops including cotton, rice, sugarcane, maize, and wheat collectively recording a growth of 0.6% over the previous year.
Despite a high growth base of 19.7% last year, other crops grew at 2.4% in the current financial year, driven mainly by substantial increases in gram (50.4%), potato (27.6%), mangoes (11.6%), banana (30.8%), turmeric (25.1%), and chillies (9.2%). This improvement can be attributed to a high base effect and weather-related constraints. Nevertheless, improvement in gram and mungbean production, better irrigation management, and supportive market conditions continued to support the subsector. The cotton ginning and miscellaneous component recorded modest growth of 0.1%, reflecting subdued cotton output during the year.
Livestock maintained its growth of 3.8% in FY 2025-26 compared to 2.9% last year. This was mainly due to increasing commercialization, improved disease management, expansion in dairy and poultry activities, and rising consumer demand. Forestry and fishing subsectors also posted growth of 2.0% and 1.7%, respectively.
Industrial sector: The industrial sector recorded a growth of 3.5% in FY2025-26 compared to 5.6% in FY2024-25. The manufacturing sector was the major driver in the industrial sector, posting a strong recovery, growing by 6.6% compared with 2.0% last year. The improvement was largely supported by better performance of LSM industries, improved domestic demand, easing inflationary pressures, and relatively stable macroeconomic conditions.
Industrial activity showed a notable improvement during FY2025–26. LSM recorded a growth of 6.1%, compared to a contraction of 0.7% in last year. Positive growth has been observed in food (9.7%), tobacco (11.7%), petroleum products (10.9%), rubber products (14.3%), electrical equipment (11.9%), automobiles (61.7%), transport equipment (39.9%), furniture (20.5%), other manufacturing (Football) (23.06%). The improvement was mainly driven by better production performance across key manufacturing segments, improved supply conditions, and easing input constraints, which collectively supported stronger and more stable industrial activity compared to the previous year.
Mining & Quarrying industry has witnessed a growth of 0.4%, as compared to a contraction of 3.7% last year, due to a mixed trend in output. While coal (4.7%), limestone (3.7%), and other minerals (4.3%) have increased, natural gas (-2.6%) and crude oil (-0.3%) have posted negative growth. This sector is still facing challenges in mineral extraction and exploration. The electricity, gas, & water supply sector showed a contraction of -10.6% compared to 29.6% last year, mainly due to a high base effect after exceptional growth last year. Another contributing factor was the reduction in budgeted subsidies to Rs. 893 billion, compared to Rs. 1,190 billion in the previous year. The modest growth in the output of WAPDA and related companies and a relatively low sectoral deflator also weighed on the sector’s nominal growth. Small-scale manufacturing maintained robust growth at 8.5%, though slightly lower than 8.9% last year.
Services sector: Growth in the services sector accelerated to 4.1% in FY 2025-26 from 3.1% in the previous year. Within the services sector, growth was broad-based across most subsectors. Wholesale & retail trade expanded by 3.7%, supported by growth in agriculture, manufacturing, and imports. Information & communication recorded a strong growth of 7.5%, led by computer programming and consultancy services. Public administration and social security grew by 8.5%, while education and health services increased by 5.2% and 6.9%, respectively, reflecting higher public sector expenditure. Transport & storage posted growth of 2.3%, with gains in railways, postal services, and road transport partly offset by declines in air and water transport. Other private services rose by 3.7%, supported by professional, technical, and administrative activities. Finance and insurance recorded modest growth of 0.3%, mainly due to a high base effect and a higher deflator. Overall, the performance of the services sector reflects continued economic stabilization and a broad-based recovery in domestic activity.
Savings and Investment: National savings stood at 14.1% of GDP, compared to 14.9% in the previous year. Domestic savings were recorded at 7.0%, slightly lower than 7.9%. This decline reflected higher consumption pressures in a recovering economy. Foreign savings made a modest positive from a negative of 0.5% to 0.2%, supporting the overall resource envelope. Despite internal and external shocks, the total investment remained stable at 14.4% of GDP in FY 2025-26. cInflation: Average CPI (National) recorded at 6.2% during July–April FY 2025-26, compared to 4.7% in the comparable period of last year. Monthly CPI inflation YoY stood at 10.9% in April 2026, compared to 0.3% in April 2025, mainly due to higher food and energy prices caused by the ongoing conflict in the Middle East.
Food inflation increased by 4.0% during Jul-Apr FY 2025-26 compared to 0.1% in the same period last year. Non-food inflation rose by 7.7% compared to 9.0% previously, and core inflation reached 7.6% compared to 9.9% last year. These trends suggest a moderation in underlying demand pressures and relatively stable input costs. Urban inflation rose to 6.3% from 5.7%, while rural inflation increased to 6.1% from 3.3%, reflecting price pressures across both food and non-food components in rural areas. Additionally, the Wholesale Price Index slightly increased to 2.3% from 2.2%, while the Sensitive Price Indicator eased to 4.1% from 4.9%, reflecting the impact of administrative, policy, and relief measures.
External sector: The external sector demonstrated stability during Jul-Apr. FY 2025-26, despite devastating floods and the recent Middle East conflict. The current account recorded a moderate deficit, with services-sector exports and workers’ remittances on an upward trajectory. In contrast, exports of goods recorded a slight decline while imports increased owing to enhanced economic activity in the country. The trade in goods deficit widened by USD5.6 billion (26.3%) as exports of goods recorded a contraction of USD 1.5 billion (5.4%) while imports of goods witnessed an increase of USD 4.1 billion (8.5%) during Jul-Apr. FY 2025-26. The exports of goods recorded a slight decline during the same period, but the increase in imports mainly resulted in a widening of the trade deficit in goods. While services exports are growing, however, they are not enough to offset the significant goods trade deficit. This imbalance reflects stronger domestic demand for imports.
Exports witnessed a contraction of 5.4 of total goods exports, recorded a growth of 2.1 and 13.2% respectively in total export receipts during the period under review. Food group exports plunged by USD 1.6 billion (28.9%) as exports of major food commodities recorded a decline. Exports of rice fell by USD 0.92 billion (35.6%) due to intensified competition and a decrease its in international market price (around 25%), while there was no export of sugar in CFY due to a ban for domestic price stability compared to USD 0.4 billion exports in the previous year period. The export receipts of the other manufacturing group declined by 1.3 % to USD 3.4 billion from USD 3.5 billion.
Imports recorded an increase of 8.5% and stood at USD52.8 billion during Jul-Apr FY2025-26 from USD48.6 billion in the corresponding period of the last year. Broad-based increase was witnessed in transport, food, machinery, agricultural & other chemicals and metal groups imports as they grew by USD 1,423 million (89.1 percent), USD 820 million (13.0 percent), USD 773 million (11.2 percent), USD 560 million (7.4 percent) and USD 355 million (8.2 percent) respectively. Whereas petroleum group and textile groups imports fell by USD 511 million (4.0 percent) and USD 420 million (8.8 percent) respectively. The Middle East conflict caused 40.5% sharp spike in the average crude oil price during March 2026 to USD95.58/bbl from USD68.01/bbl recorded in February 2026. Moreover, supply disruptions through the closure of the Strait of Hormuz, which accounts for one-fifth of global oil and LNG trade, resulted in rising insurance premiums and freight costs on crude oil imports and triggered a sharp rise in energy prices globally.
Trade in services deficit narrowed by USD 425 million (17.3 percent) and stood at USD 2,040 million during Jul-Apr FY26 compared to USD 2,465 million in the corresponding period of previous year. Exports of services recorded an increase of USD 1,242 million (17.7 percent) and stood at USD 8,270 million. The ICT, travel, other business exports recorded an increase of 21.1 percent, 39.5 percent, 25.4 percent whereas transport and general government services exports decreased by 6.9 percent and 1.7 percent, respectively. The ICT sector is a key focus of the current government, aimed at boosting the economy, creating jobs, and improving the quality of life. The sector is receiving support through incentives and initiatives that include infrastructure development, global marketing, skills training, freelancer support, and international certifications. Imports of services increased by USD 817 million (8.6 percent) during Jul-Apr FY26 and stood at USD 10,310 million compared to USD 9,493 million in the corresponding period of previous year. Travel, transport, ICT and government services imports increased by 2.80 percent, 6.6 percent, 28.2 percent and 6.3 percent during the period under review, whereas financial and other business services imports decreased by 18.2 percent and 10.6 percent, respectively.
The Workers’ remittances inflows maintained upward momentum and stood at USD33,859 million during Jul-Apr, FY2025-26, compared to USD31,207 million in the corresponding period of the previous year. Due to recent turbulence in the Middle East, remittances inflows in April 2026 were down by 7.6% and stood at USD 3,538 million as compared to USD 3,831 million in March 2026. The major contributing destinations during Jul-April FY 2025-26 are Saudi Arabia (20.9%), UAE (18.6%), UK (13.6%), EU Countries (11.6%), other GCC countries (8.5%), and USA (7.9%). The significant rise can be attributed to a stable exchange rate, better economic prospects in host countries, and the government’s facilitation measures to incentivise remittances through the banking channel.
Pak Rupee vis-à-vis US dollar parity remained stable during the period under review. The average exchange rate stood at Rs 280.94 in Jul-Apr FY 2025-26 compared to Rs 278.75 in the corresponding period of the previous year. The average Real Effective Exchange Rate (REER) Index during Jul-Apr FY 2025-26 stood at 103.16 compared to 101.49 in the corresponding period of the previous year. The stable macroeconomic conditions, along with continued reforms undertaken by SBP, helped in stabilizing the exchange rate.
Pakistan’s total gross liquid foreign exchange reserves are reported as USD21.3 billion as of 8th May 2026 compared to USD14.8 billion at the end of April 2025. The overall rise in official reserves helps in strengthening external buffers and growing macroeconomic confidence.
Fiscal developments: Pakistan’s fiscal performance showed considerable improvement up to the third quarter of FY 2025-26. Total revenue increased by 10.7%, reaching Rs. 14,799.3 billion, up from Rs. 13,367.0 billion collected during the corresponding period of last year. This growth was supported by a 11.3% rise in tax revenue, driven largely by 10.1% increase in FBR tax collection. Both direct and indirect taxes grew by 12.4% and 7.9. Federal non-tax revenue rose by 8.2% largely on account of one-off SBP profit transfer, petroleum levy, dividends from investments, and royalties on oil and gas. Provincial non-tax revenues reached Rs. 277.5 billion, recording a growth of 36.7 %, mainly on account of a significant growth in profits from hydroelectricity.
Total expenditure stood at Rs. 15655.6 billion during July-March FY 2025-26, reflecting a decline of 4.2% over the same period of last year. Current expenditures declined by 2.2%, whereas development expenditure increased by 26.8%. Servicing of domestic debt reduced by 25.9%, whereas servicing of foreign debt increased by 0.6%. Non-interest current expenditures grew by 18.8%, mainly due to higher spending on defense and grants, as well as higher provincial current expenditures.
Overall fiscal deficit stood at Rs 856.4 billion (0.7 of GDP) during the corresponding period of last year and against the annual target of 3.9 during the period under review, indicating a remarkable achievement in the government’s prudent expenditure management.
Gross public debt of Pakistan stood at Rs. 83,285 billion as of March 2026, posting a growth of 3.4% during July-March FY 2025-26. Public debt is mainly dominated by domestic debt, while external debt is declining from 38% (Jun 2023) to 31% (March 2026), reducing exchange-rate risk. Borrowing has shifted toward medium and long-term securities, increasing the Average Time to Maturity from 2.8 years (Jun 2024) to 3.86 years (Mar 2026), and lowering refinancing risk by reducing reliance on short-term Treasury Bills.
Monetary developments: Broad money (M2) expanded by 7.3% from July 1, 2025, to May 1, 2026, compared to an expansion of 3.8% during the same period last year. The increase in liquidity was mainly driven by a rise in the Net Foreign Assets (NFA) of the banking system, which grew by Rs. 1,518.2 billion compared to Rs. 1,218.2 billion last year. Net Domestic Assets (NDA) also recorded an expansion of Rs. 1,431.8 billion, compared to Rs. 138.5 billion in the corresponding period last year. This was primarily due to higher net borrowings from scheduled banks for budgetary support, a net retirement of loans from the SBP and a contraction in other items (net). Additionally, financing for commodity operations witnessed a net retirement of Rs. 50.1 billion, reflecting continued reforms such as the rationalization of wheat procurement and the gradual abolition of the minimum support price (MSP).
As underlying inflationary pressures eased, driven by the dissipation of earlier food and energy price shocks and the anchoring of inflation expectations, the SBP continued its easing monetary policy stance during the first three quarters of FY 2025–26. However, inflationary pressures resurfaced in the last quarter of the ongoing fiscal year, with headline inflation accelerating to 10.9 percent in April 2026 compared to 0.3 percent in April 2025. In response, the SBP increased the policy rate by 100 bps to 11.50 percent, marking a definitive reversal of the easing cycle.
Employment Generation: Employment expands steadily by 1.8 million in FY 2025-26 amid improving economic growth due to higher public and private investment. The services sector was the largest contributor to employment generation, adding around 1.1 million jobs in FY2025-26 driven by trade, transport, ICT, finance, and community services, 0.3 million jobs in agriculture sector, and 0.4 million jobs in industry Public investment provided enabling role in job creation by supporting infrastructure, energy, connectivity, urban services, and human capital development that crowded in private investment, thereby expanding employment opportunities across all sectors. Federal and provincial governments were simultaneously implementing several employment-focused initiatives to strengthen labor market participation, entrepreneurship, technical skills, and job matching mechanisms. These programs include Prime Minister Youth Business and Agriculture Loan Scheme, Prime Minister Youth Skill Development Program, Ba-Ikhtiyar Naujawan Internship Program, etc., at the Federal level. Whereas, Provincial governments were complementing these efforts through targeted interventions, including Punjab’s Rozgar Support and SME financing schemes, Khyber Pakhtunkhwa’s technical training and on-the-job programs, Sindh’s labor-intensive public works and urban services initiatives, and Balochistan’s vocational and rural skill development programs.
Copyright Business Recorder, 2026