Pakistan’s economic position showed further improvement in the first half of fiscal year 2026, even as global uncertainty and domestic flooding created pressure on growth, according to the State of Pakistan’s Economy report released on Tuesday.
The half-year review by the State Bank of Pakistan noted that despite external shocks, overall macroeconomic stability strengthened during H1-FY26, supported by tighter policies, reforms, and improving financial buffers.
However, it warned that rising tensions in the Middle East could still pose risks through supply chain disruptions, which may affect inflation, trade flows, remittances, and wider economic activity.
The central bank said the impact of the conflict on overall growth is not expected to be major in FY26. Even so, it revised its outlook, projecting real GDP growth near the lower end of the earlier range of 3.75 percent to 4.75 percent.
Inflation is expected to remain sensitive to global oil and commodity price movements. The report warned that any sharp rise in energy costs could keep inflation above the upper limit of the 5 percent to 7 percent target range during FY27.
On the external front, the current account deficit is now projected to stay close to the lower end of the earlier estimate of 0 to 1 percent of GDP. Remittances remain a key support, though the bank flagged possible pressure in the final quarter of FY26 due to weaker inflows from Gulf countries, which account for more than half of Pakistan’s remittances.
According to the State Bank of Pakistan, economic activity gained pace in H1-FY26, with GDP growth recorded at 3.8 percent, nearly double the pace seen in the same period last year. Industry led the recovery, followed by services and agriculture.
Inflation eased to an average of 5.2 percent, helped by stable exchange rates, lower global commodity prices, and policy actions. The bank also reported a rare fiscal surplus, driven by lower interest payments and tighter spending controls, marking the first such surplus since FY02.
However, challenges remain. Exports are under pressure from weak global demand, falling rice prices, border disruptions, and shifting trade patterns. Meanwhile, imports rose due to stronger domestic activity.
The report also highlighted Pakistan’s high vulnerability to climate change, noting limited preparedness and financing gaps, which continue to weigh on long-term economic stability.
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