Islamabad: Pakistan’s economy recorded its strongest annual growth in four years during fiscal year 2025-26, with real Gross Domestic Product (GDP) expanding by 3.7% as improving macroeconomic stability, stronger industrial activity, and resilient external accounts supported the country’s economic recovery.
According to Beyond Time News, the Ministry of Finance’s Economic Update and Outlook for June 2026 estimates that Pakistan’s economy expanded to $452.1 billion, reflecting steady progress despite flood-related disruptions earlier in the fiscal year and volatility in global commodity markets.
Economic Growth Broadens Across Key Sectors
The finance ministry said economic growth remained broad-based, with agriculture, industry, and services all contributing to the overall expansion.
Despite weather-related challenges, the agriculture sector posted 2.9% growth during FY2025-26. The government expects the sector to improve further in FY2026-27, targeting 3.6% growth through stronger performance in livestock, major crops, fisheries, and cotton ginning.
The industrial sector also showed a strong recovery. Large-scale manufacturing (LSM) grew by 6.4% during July-April FY2025-26, compared with a 1.5% contraction during the same period a year earlier.
The ministry said the improvement reflects stronger industrial output and increased business activity.
Fiscal Position Continues to Improve
Pakistan also recorded stronger fiscal indicators during the fiscal year.
According to Beyond Time News, the fiscal deficit narrowed during the first ten months of FY2025-26, while the government achieved a primary surplus of 3.5% of GDP between July and April through improved revenue collection, disciplined spending, and provincial budget surpluses.
Net federal revenue increased 5.8% to Rs8.6 trillion, supported by higher tax and non-tax receipts.
Meanwhile, the Federal Board of Revenue (FBR) collected Rs11.23 trillion in taxes during July-May, representing 9.7% growth over the previous year.
Government expenditure declined by 9.9%, largely due to lower debt servicing costs and tighter fiscal management.
External Sector Shows Greater Stability
Pakistan’s external accounts also strengthened during the fiscal year.
The report said the current account recorded a surplus of $255 million during July-May FY2025-26, supported by higher exports of information technology services, a stable exchange rate, improved foreign exchange reserves, and robust inflows of overseas workers’ remittances.
Record monthly remittances of $4.25 billion in May further strengthened the country’s external position and supported the balance of payments.
Officials believe continued growth in IT exports and remittances will help maintain external stability in the coming fiscal year.
Investor Confidence Improves
The finance ministry said investor confidence strengthened as Pakistan continued implementing reforms under the International Monetary Fund (IMF) programmes.
The report highlighted improvements in Pakistan’s sovereign credit ratings by Fitch Ratings and Moody’s Ratings, which helped restore investor confidence.
During the year, Pakistan returned to international capital markets through a Eurobond issuance after four years and also launched Panda Bonds, while the KSE-100 Index reached a record high, making it one of Asia’s best-performing equity markets.
Inflation Remains a Key Challenge
Although inflation remained significantly lower than previous years, price pressures increased slightly in recent months.
Consumer Price Index (CPI) inflation stood at 11.7% year-on-year in May 2026, compared with 10.9% in April.
However, average inflation during July-May remained at 6.7%, which the ministry said stayed within its target range.
Officials expect inflation to remain between 11% and 12% in June before easing as lower international oil prices reduce imported inflation.
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Government Sees Continued Growth in FY2026-27
The government believes Pakistan’s economic recovery will continue during the next fiscal year.
According to Beyond Time News, Budget 2026-27 focuses on export-led growth, tax relief, fiscal discipline, and stronger social protection programmes.
The ministry expects continued expansion in manufacturing, stable agricultural production, higher remittances, growing IT exports, and prudent economic management to support sustainable growth.
Lower global oil prices following easing geopolitical tensions in the Middle East are also expected to reduce fuel costs and inflationary pressures.
Why the Latest Figures Matter
The latest economic indicators suggest Pakistan has made progress in restoring macroeconomic stability after years of high inflation, external financing challenges, and slow growth.
While challenges such as inflation, public debt, and structural reforms remain, stronger industrial production, improved fiscal performance, and healthier external accounts provide a more stable foundation for future economic expansion.
Conclusion
Pakistan’s economy closed FY2025-26 with its fastest growth in four years, supported by stronger manufacturing, improved fiscal management, stable external accounts, and record remittances. While inflation and global uncertainties remain important challenges, the latest finance ministry report points to improving economic fundamentals and a cautiously optimistic outlook for the coming fiscal year.
Frequently Asked Questions
What was Pakistan’s GDP growth in FY2025-26?
Pakistan’s economy grew by 3.7%, the fastest annual growth recorded in four years.
How large is Pakistan’s economy now?
According to the finance ministry, Pakistan’s economy reached $452.1 billion during FY2025-26.
What contributed to the economic growth?
Growth was driven by stronger manufacturing, improved fiscal management, stable external accounts, higher IT exports, and record workers’ remittances.
How much was the primary surplus?
Pakistan achieved a primary surplus of 3.5% of GDP during July-April FY2025-26.
What is the government’s outlook for FY2026-27?
The government expects continued economic growth supported by exports, agriculture, manufacturing, fiscal discipline, and stable macroeconomic conditions.
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