Pakistan’s economy is showing clear signs of recovery after several difficult years marked by weak growth, high prices and external pressure. The latest Economic Survey for fiscal year 2025-26, presented by Finance Minister Muhammad Aurangzeb, points to a shift from crisis management towards gradual stabilisation and rebuilding.
While challenges remain, the overall direction of the economy has improved, with growth returning, inflation easing and foreign reserves strengthening.
Growth returns after years of pressure
The size of the economy has expanded to a record US$452.1 billion, marking an 11 percent increase compared with the previous year. Real GDP growth has reached 3.70 percent in FY2026, continuing a recovery trend after the contraction seen in FY2023.
This improvement is visible across major sectors. Agriculture grew by 2.89 percent, supported by better output despite earlier climate-related setbacks. Industry also recovered, expanding by 3.51 percent, while large-scale manufacturing recorded a four-year high growth of 6.1 percent, with most sectors posting gains.
For ordinary citizens, this recovery is reflected in rising income levels. Per capita income increased by 9 percent to US$1,901, offering some relief after years of declining purchasing power.
Inflation eases, fiscal gap narrows
One of the most noticeable changes has been in prices. Inflation, which had previously reached painful levels, has now slowed significantly. Average inflation fell to 6.7 percent between July and May, compared with 29.2 percent in FY2023. This slowdown has brought some breathing space for households struggling with food and energy costs.
At the same time, fiscal management has improved. The fiscal deficit narrowed sharply to 0.7 percent of GDP during July to March, down from the much higher levels seen in earlier years. A primary surplus of 3.2 percent helped reduce pressure on public finances, while the debt-to-GDP ratio eased to 68.5 percent.
External accounts strengthen on remittances and exports
Pakistan’s external position has also improved significantly. The current account deficit narrowed to just US$252 million during July to April, indicating better balance in foreign payments.
A major support came from overseas Pakistanis. Remittances rose 9 percent to a record US$33.9 billion during July to May, with April 2026 alone bringing in US$4.3 billion. These inflows continue to play a vital role in supporting families and stabilising the rupee.
Technology exports have also emerged as a growing strength. IT and related exports reached US$3.8 billion, supported by a fast-growing freelance sector that is moving closer to US$1 billion in annual inflows.
As a result, foreign exchange reserves rose 49 percent to US$17.2 billion by late May 2026, improving import cover to 2.75 months. This provides greater stability for trade and external payments.
Investment interest and digital shift gain pace
Investor participation in the stock market has increased sharply, with more than 563,000 individuals now part of the equity market. A large share of these are young and first-time investors, reflecting growing confidence in financial markets.
Corporate activity has also picked up, with 11 initial public offerings recorded so far this year, the highest in two decades. Meanwhile, over 39,000 new companies have been registered, most through digital platforms, showing a shift towards easier business formation.
At the same time, social protection spending has been raised, with the Benazir Income Support Programme allocation increased by 21 percent to Rs722.5 billion to support vulnerable households.
Stability has returned in key areas such as inflation, reserves and fiscal management, while growth and investment activity are gradually picking up.
However, the economy remains sensitive to external shocks and domestic reforms will be critical to maintaining momentum. The direction is clearer than before, but sustaining it will depend on consistent policy execution in the months ahead.
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