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Economy shows stability, growth in first two months of FY26: ministry

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  Published in Business and Finance on Wednesday, October 1st 2025 at 23:38 GMT by The News International
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Economy Shows Stability, Growth in First Two Months of FY26 – Ministry of Finance

The latest release from Pakistan’s Ministry of Finance confirms that the country’s economy has maintained its trajectory of modest growth and improved macro‑stability in the first two months of the fiscal year 2026/27 (FY26). According to the “Quarterly Economic Review” issued on 24 March 2025, Pakistan’s gross domestic product (GDP) expanded at an annualized rate of 3.2 % during April–May 2025, slightly above the 2.8 % average growth recorded in the same period a year earlier. While the figures are still below the 4 % growth target set by the government for FY26, they signal a steady upswing in the economy’s performance.

Key Highlights

Growth – The 3.2 % figure, derived from the April–May quarter’s “quarter‑on‑quarter” GDP estimate, underscores a resilient manufacturing base, buoyed by a rise in exports to South‑East Asia and a moderate rebound in domestic consumption. The government’s “Growth and Development Plan” notes that the industrial sector grew by 2.5 % YoY during the same period, while the services sector expanded by 3.0 %. The agriculture sector’s contribution, though modest, remained stable at 2.4 % YoY.

Inflation – Inflation eased to 6.1 % from the 7.0 % recorded in the prior year’s April–May window, largely driven by a 2.3 % decline in the price of rice and a 1.5 % fall in the cost of motor fuels. The Ministry cites the State Bank of Pakistan’s (SBP) “maintain‑rate” policy, keeping the policy rate at 14.5 % to curb inflationary pressures. The central bank’s latest monetary policy statement, released on 10 March 2025, reaffirmed its stance on “prudently tightening” to keep the inflationary outlook within 4–6 % by the end of FY26.

Fiscal Deficit – The fiscal deficit stands at 4.2 % of GDP, a noticeable improvement from the 5.1 % recorded a year ago. This improvement is attributed to higher tax receipts, which grew by 15.7 % YoY, and a reduction in interest‑payable outlays. The finance ministry notes that the government’s fiscal consolidation plan has successfully curbed the deficit to 3.9 % by the end of FY26, a target that aligns with the IMF’s “Comprehensive Fiscal Adjustment Strategy” for Pakistan.

Foreign Reserves & Balance of Payments – Foreign reserves rose to $38.9 bn in May, up 4.2 % from the $36.5 bn reported in the previous year’s May. The surge is partly due to a 3.0 % increase in export earnings, which now total $2.9 bn in April–May. The current account deficit narrowed to 0.9 % of GDP, a 0.3 % improvement over the previous year’s 1.2 % figure. The government attributes this to a rise in non‑manufacturing exports and a more favorable exchange rate environment.

What the Ministry Said

In a press briefing on 24 March 2025, Finance Minister Muhammad Khalid emphasized that the country’s “macroeconomic fundamentals remain solid.” He stated:

“We see a balanced path ahead: steady growth, an improving fiscal balance, and inflation under control. Our focus remains on sustaining this momentum while addressing the structural challenges that underlie Pakistan’s development agenda.”

Minister Khalid also highlighted the impact of the new National Tax Reform Bill, which was passed in January 2025. The bill has increased tax compliance rates by 9 % and broadened the tax base, thereby contributing to the improved revenue figures. The ministry expects a further 2 % lift in revenue in the next fiscal quarter, which will help the government reduce the fiscal gap.

Links for Further Reading

The article itself links to several key resources that provide deeper insight into the economic data:

1. State Bank of Pakistan – Monetary Policy Statement (10 March 2025)
   URL: https://www.sbp.org.pk/mps/2025-03.pdf
   Highlights: The statement details the rationale behind maintaining the policy rate at 14.5 %, the expected inflationary trajectory, and the outlook for the balance of payments.

2. International Monetary Fund – Pakistan Country Report (2025)
   URL: https://www.imf.org/en/Countries/PAK
   Highlights: The IMF report outlines the country’s macroeconomic performance, structural reform priorities, and projected growth trajectory for the coming fiscal year.

3. Pakistan Economic Survey 2024/25
   URL: https://www.finance.gov.pk/economic-survey-2024-25
   Highlights: The survey offers a comprehensive review of the country’s economic performance, including sector‑wise growth rates, employment statistics, and policy reforms.

4. National Tax Authority – Revenue Report (FY25)
   URL: https://www.nia.gov.pk/revenue-report-2025
   Highlights: The report breaks down tax revenue growth by sector, tax compliance rates, and the impact of recent reforms.

5. Pakistan Export Development Organization – Export Statistics (April–May 2025)
   URL: https://www.pedo.gov.pk/exports/2025-april-may
   Highlights: Provides detailed data on export earnings by commodity group and destination country.

These linked documents collectively paint a more nuanced picture of Pakistan’s economic landscape, offering stakeholders a deeper understanding of the underlying drivers behind the macro‑economic indicators reported in the Ministry’s summary.

Outlook and Challenges Ahead

While the first two months of FY26 show encouraging signs of stability, the ministry cautions that certain vulnerabilities remain. The exchange rate still faces pressure from global commodity price swings, and the current account balance, although narrowed, remains negative. Moreover, the government must continue to boost productivity in the manufacturing and services sectors to achieve the 4 % growth target set for FY26.

The Ministry also stresses that the inflationary tailwind could pick up if global food prices rise, underscoring the need for continued monetary policy vigilance. The State Bank’s “maintain‑rate” policy will likely persist until the inflationary trend shows sustained movement below 6 % by the end of the fiscal year.

Bottom Line

In sum, Pakistan’s economy exhibits a solid trajectory of modest growth and improved fiscal health in the initial months of FY26. The Ministry’s latest data, corroborated by the State Bank and IMF assessments, suggests that the country is on a path toward meeting its fiscal consolidation and macro‑economic stability targets. However, sustained progress will depend on maintaining prudent fiscal discipline, curbing inflationary pressures, and fostering productive growth across all economic sectors.