19.05.2026
Pakistan’s economy continued to stabilise in FY2025, supported by fiscal discipline, lower inflation, improved external financing and stronger confidence under the IMF-supported reform programme. Growth gained momentum in the first half of FY2026, helped by an industrial rebound and stronger domestic demand. However, the outlook has become more challenging due to higher global energy prices, trade-route disruptions and pressure on external buffers. Inflation is expected to rise again from the very low FY2025 level, while fiscal consolidation remains essential to keep debt on a downward path.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy, factor cost) | 3.1 | 3.0 | 3.2 |
| Inflation (%, yoy) | 4.5 | 7.4 | 8.2 |
| Employment rate (% of working-age population, 15+) | 49.7 | 49.7 | 49.7 |
| Fiscal balance, including grants (% of GDP) | -5.4 | -4.3 | -4.4 |
| Gross public debt (% of GDP) | 76.1 | 73.2 | 70.9 |
| Current account balance (% of GDP) | 0.5 | -1.2 | -1.1 |
Recovery continues but remains fragile
Pakistan’s real GDP growth recovered to 3.1% in FY2025, supported by macroeconomic stabilisation, improved confidence and a rebound in industry and services. Economic activity strengthened further in the first half of FY2026, with manufacturing and domestic demand improving after a period of adjustment.
Growth is projected at 3.0% in FY2026 and 3.2% in FY2027. The recovery remains modest by Pakistan’s historical needs, especially given rapid population growth and high poverty. Energy-market disruptions, weaker exports and softer remittance inflows are expected to limit the pace of expansion, while structural constraints in taxation, energy, trade and state-owned enterprises continue to weigh on potential growth.
Inflation rises after a sharp decline
Inflation fell sharply to 4.5% in FY2025, after very high inflation in FY2023–FY2024. The decline reflected tighter macroeconomic policies, exchange-rate stability, easing supply pressures and improved confidence. This allowed the central bank to begin reducing policy rates while maintaining a cautious stance.
Inflation is projected to rise again to 7.4% in FY2026 and 8.2% in FY2027, mainly because of higher commodity prices, energy-price pass-through and persistent core inflation. Maintaining prudent monetary policy and allowing market-based fuel pricing will be important to prevent renewed inflationary pressure, while targeted support may be needed to protect vulnerable households.
Fiscal consolidation remains central
The fiscal deficit narrowed to 5.4% of GDP in FY2025 and is projected to decline further to 4.3% in FY2026, before remaining around 4.4% in FY2027. The primary balance has improved significantly, supported by expenditure restraint, lower interest payments and higher revenues, including petroleum levy collections.
Public debt remains high but is projected to decline from 76.1% of GDP in FY2025 to 70.9% in FY2027. Sustained fiscal discipline will remain critical, particularly given Pakistan’s large financing needs, vulnerability to external shocks and limited fiscal space. Tax administration, energy-sector reforms, public investment management and control of contingent liabilities will be key priorities.
External balance remains vulnerable
Pakistan recorded a small current account surplus of 0.5% of GDP in FY2025, helped by remittances, import compression and external financing inflows. However, the current account is projected to return to deficit in FY2026 and FY2027 as higher oil prices, stronger imports and weaker goods exports weigh on the balance of payments.
External buffers have improved, but remain limited. Higher energy prices, disruptions to trade routes, weaker remittances from Gulf economies and delays in external financing could quickly put pressure on reserves and the exchange rate. Maintaining exchange-rate flexibility and rebuilding reserves will therefore remain important for macroeconomic stability.
Overall outlook
Pakistan’s outlook has improved compared with the crisis period, but the recovery remains fragile. Growth is expected to remain modest in FY2026–FY2027, inflation is likely to rise from its FY2025 low, and fiscal and external vulnerabilities remain significant. The main challenge is to preserve stabilisation gains while advancing structural reforms that can raise investment, exports, productivity and job creation. Sustained progress under the IMF-supported programme will be essential for reducing risks and strengthening medium-term growth.
Sources:
World Bank, Pakistan Macro Poverty Outlook, April 2026.
International Monetary Fund, Pakistan: Third Review Under the Extended Arrangement Under the Extended Fund Facility and Second Review Under the Resilience and Sustainability Facility Arrangement, May 2026.
International Monetary Fund, World Economic Outlook, April 2026.
Asian Development Bank, Asian Development Outlook, April 2026: Pakistan.
State Bank of Pakistan, Monetary Policy Report, February 2026.
Government of Pakistan, State of Pakistan’s Economy: Half-Yearly Report 2026.
