Pakistan just closed out a fiscal year that officials are calling a story of resilience. According to the Pakistan Economic Survey for FY2025-26, presented by Finance Minister Muhammad Aurangzeb in June, the economy grew 3.7 percent — the fastest pace in four years, and a meaningful step up from last year’s 3.18 percent. It’s genuine progress. It’s also short of the government’s own 4.2 percent target, a gap that tells you just as much about where the economy stands as the headline figure does.
The good news first
There’s plenty to point to. The fiscal deficit narrowed sharply to 0.7 percent of GDP for the July-March period, down from 2.6 percent a year earlier — a sign that Islamabad’s tighter spending discipline, part of its ongoing IMF programme, is actually showing up in the numbers. Workers’ remittances rose 8.2 percent to $30.3 billion, cementing their role as one of the economy’s steadiest external supports. And the stock market had a standout year: the KSE-100 index climbed 18.4 percent between July and March, lifting Pakistan Stock Exchange market capitalisation from roughly Rs15.2 trillion to Rs16.5 trillion. Aurangzeb credited stronger corporate earnings, falling inflation and interest rates, and continued IMF disbursements for the rally.
IT exports also had a strong showing, crossing $3.4 billion for the nine-month period — a reminder that the tech and services sector remains one of the few parts of the economy consistently outperforming expectations. https://theazb.com/
Where the cracks are showing
The current account told a more mixed story. Pakistan posted just a $72 million surplus in the July-March window, a steep fall from the $1.7 billion surplus recorded a year prior — a gap that puts fresh scrutiny on how sustainably the country is financing its external position. And on the revenue side, the Federal Board of Revenue missed its IMF-linked tax collection target by close to Rs975 billion, collecting Rs13 trillion against a goal that had already been revised down from Rs14.13 trillion. It’s the second year running that FBR has fallen short by roughly that margin, which raises an uncomfortable question for policymakers heading into the FY27 budget cycle: how much further can spending discipline alone carry the fiscal consolidation story before revenue reform has to catch up?
Inflation, rates, and the regional headwind
The Asian Development Bank’s July outlook adds some useful — and sobering — context. The ADB now projects Pakistan’s inflation at 7.2 percent for FY26, revised upward on the back of rising food and fuel costs, with FY27 pushed even higher to 8.3 percent. The culprit is largely external: prolonged disruption to global energy markets stemming from the Middle East conflict is feeding through into fertilizer and commodity prices, and Pakistan — a heavy net importer of oil and gas — is particularly exposed. The State Bank is expected to keep easing monetary policy, but cautiously, given how much of the inflation picture is being driven by forces well outside its control.
The ADB’s growth forecast for FY27 has also been trimmed to 3.7 percent, down from earlier, more optimistic projections, with energy costs and remittance pressure cited as the main drags. It’s a useful check on any temptation to read the FY26 numbers as a definitive turnaround — the recovery is real, but it’s happening against a genuinely difficult external backdrop.
The bigger structural question
Strip away the year-to-year noise and a familiar debate resurfaces: whether Pakistan’s growth model can keep leaning on remittances and financial-market sentiment, or whether it needs a harder pivot toward exports and productivity. Aurangzeb pushed back directly on this framing at his press conference, arguing it isn’t an “either/or” choice between boosting exports and relying on remittance inflows, but an “and/and” — both need to grow together. It’s a fair point, but it also sidesteps the harder question of what structural reforms would actually get exports and industrial output moving at a faster clip than 3.7 percent a year.
What to watch next
With the FY27 budget now in effect and an IMF review cycle ongoing, the next few months will show whether this year’s fiscal discipline holds once political pressure builds around energy prices and public spending. The current account gap, the FBR shortfall, and the external energy shock are the three pressure points most likely to determine whether FY27 builds on this year’s momentum — or whether the 3.7 percent growth rate turns out to be more of a ceiling than a floor.
This article is based on Pakistan’s Economic Survey 2025-26, the Asian Development Bank’s July 2026 Asian Development Outlook, and reporting from Dawn and Business Recorder.