Islamabad, March 31, 2026 – The Finance Division has projected a stable near-term outlook for Pakistan’s economy despite rising geopolitical tensions stemming from the ongoing Iran conflict. In its latest Monthly Economic Report, the ministry highlighted resilience across key economic sectors, supported by prudent fiscal management and improving industrial activity.
Economic Outlook Remains Cautiously Optimistic
According to the report, Pakistan’s economy is showing encouraging signs of stability, even as global uncertainties—particularly rising oil prices and supply chain disruptions—pose potential risks. The government has adopted proactive measures, including maintaining petroleum reserves, managing energy demand, and enforcing austerity policies to cushion the economy.
Inflation is expected to remain within the range of 7.5–8.5 percent in March 2026, reflecting controlled price pressures. Meanwhile, strong remittance inflows, especially ahead of Eid, along with growing IT exports, are supporting foreign exchange earnings.
Industrial Growth and Manufacturing Recovery
The report indicates a steady recovery in the industrial sector, with increased imports of textile machinery and construction-related inputs pointing toward higher production activity. Large-Scale Manufacturing (LSM) recorded a growth of 5.8 percent during July–January FY2026, compared to a contraction last year.
Key sectors driving growth include automobiles, textiles, food processing, and petroleum products. Automobile production showed remarkable gains, with trucks and buses up by 78.4 percent, cars by 52.3 percent, and motorcycles by 31.2 percent. Cement dispatches also rose by 10.9 percent, reflecting improved construction activity.
Agriculture Sector Shows Positive Trends
Agriculture remains a key pillar of the economy, with the wheat production target set at 29.7 million tonnes for the Rabi season 2025-26. Improved sowing conditions and increased agricultural credit—up 11.1 percent to Rs1,649 billion—indicate strong support for farmers.
Additionally, imports of agricultural machinery rose by 17.1 percent, while fertilizer offtake also increased, suggesting enhanced farm productivity. However, final output will depend on weather conditions during the harvest period.
Fiscal Consolidation and Revenue Growth
Pakistan’s fiscal position has improved significantly due to strict financial discipline. The fiscal deficit during July–January FY2026 was contained at Rs64.7 billion, a sharp reduction from Rs2,070.9 billion in the same period last year.
Federal revenues increased by 9.3 percent, reaching Rs11,218.8 billion, driven by both tax and non-tax collections. The Federal Board of Revenue (FBR) recorded a 10.6 percent rise in tax collection to Rs8,122.2 billion, supported by growth in direct and indirect taxes.
Government expenditures declined by 10.7 percent, mainly due to a reduction in current spending and markup payments, while development spending increased by 13 percent to support economic growth.
External Sector and Reserves Strengthen
Pakistan’s external account remains manageable despite a widening trade deficit. In February 2026, the current account posted a surplus of $427 million, bringing the cumulative deficit for July–February to $700 million.
Remittances increased by 10.5 percent to $26.5 billion, with major contributions from Saudi Arabia and United Arab Emirates. IT exports also surged by 19.7 percent, highlighting the country’s digital growth.
Foreign exchange reserves reached $21.7 billion, including $16.4 billion held by the State Bank of Pakistan, marking a four-year high and strengthening the country’s ability to manage external shocks.
Inflation and Monetary Policy
Inflation stood at 7.0 percent year-on-year in February 2026, slightly higher than the previous month but still within manageable levels. Key contributors include housing, utilities, education, and food items.
The central bank maintained the policy rate at 10.5 percent, reflecting a balanced approach to controlling inflation while supporting growth. Money supply also expanded moderately, indicating improved liquidity in the economy.
Stock Market Faces Pressure
Despite positive macroeconomic indicators, the Pakistan Stock Exchange (PSX) witnessed bearish trends due to geopolitical tensions. The benchmark KSE-100 Index declined sharply in February, losing over 16,000 points as investor sentiment weakened amid regional uncertainty.
Social Protection and Employment Support
The government continues to expand social safety nets to protect vulnerable populations. The Benazir Income Support Programme (BISP) disbursed Rs329.8 billion during July–January FY2026, marking a 36.9 percent increase.
Additionally, overseas employment rose significantly, with over 61,000 workers registered in February 2026, while interest-free loans worth Rs543 million were distributed to support small businesses and low-income groups.
Outlook: Resilience Amid Global Uncertainty
Despite risks from rising oil prices and geopolitical tensions, Pakistan’s economic indicators suggest a resilient and stable outlook. Improved fiscal discipline, growing exports, strong remittances, and proactive policy measures are helping the country navigate external challenges.
The Finance Division emphasized that continued reforms and strategic planning will be key to sustaining growth and ensuring long-term economic stability in the face of global uncertainties.