The Ministry of Finance has noted that with geopolitical risks receding, global energy prices moderating, inflationary pressures easing, and external buffers improving, Pakistan’s economic outlook remains favorable, with growth expected to strengthen while maintaining macroeconomic stability.
“The recent easing of geopolitical tensions, due to the ongoing peace efforts in the Middle East, has improved global market sentiment. Consequently, international crude oil prices have eased from their recent highs which is expected to reduce imported inflationary pressures and help lower domestic fuel and transportation costs. Inflation is anticipated to remain within the range of 11-12 percent for June 2026,” the ministry noted in its Monthly Economic Update and Outlook 2026.
Macroeconomic Stabilization and Growth Momentum
With macroeconomic stabilization largely achieved, Pakistan’s economy is expected to maintain its growth momentum, supported by improving macroeconomic fundamentals, sustained expansion in manufacturing, especially Large Scale Manufacturing (LSM), a stable external account, improved fiscal discipline, and continued resilience in the agriculture sector.
On the domestic front, prudent macroeconomic policies, continued fiscal consolidation, and targeted support for productive sectors are expected to sustain economic growth while preserving macroeconomic stability.
External Sector Strengthens
The external sector outlook has strengthened further, supported by record workers’ remittances in May 2026 and continued growth in IT exports, which are expected to reinforce the balance of payments, support foreign exchange reserves, and enhance resilience against external shocks.
The ministry noted that fiscal management continues to improve. Net federal revenue increased by 5.8 percent to Rs 8,601.1 billion during July-April FY2026, supported by growth in both tax and non-tax revenues, which increased by 10.3 percent and 6.0 percent, respectively. During July-May FY2026, FBR’s tax collection grew by 9.7 percent and reached Rs 11,228.8 billion. This growth was driven by both direct and indirect taxes, which grew by 13.0 percent and 6.7 percent, respectively. Within indirect taxes, sales tax increased by 7.7 percent, customs duties by 1.4 percent, and federal excise duty by 10.7 percent.
Fiscal Deficit Narrows
Total expenditure during this period declined by 9.9 percent to Rs 11,621.3 billion. The contraction was primarily driven by a 10.3 percent reduction in current expenditure, largely due to a significant decline in mark-up payments (21.9 percent). Development expenditure increased by 1.2 percent, indicating that the government maintained support for priority development spending while containing non-development expenditure.
Overall fiscal balance recorded a deficit of 1.1 percent of GDP (Rs 1,350.1 billion) during July-April FY2026, compared to a deficit of 3.2 percent of GDP (Rs 3,633.9 billion) during the corresponding period last year. The primary surplus was recorded at 3.5 percent of GDP (Rs 4,379.9 billion), compared to 3.2 percent of GDP (Rs 3,703.9 billion) last year.
Current Account Surplus
The report stated that external account stability remains intact. In May 2026, the current account recorded a surplus of $459 million, turning the aggregate position during July-May FY2026 to a surplus of $255 million. Goods and services exports are recorded at $37.4 billion, broadly unchanged from $37.5 billion last year, with goods exports amounting to $28.3 billion. Goods and services imports were recorded at $69.6 billion compared to $64.5 billion last year, of which goods imports were $58.5 billion. The trade deficit of goods and services widened to $32.2 billion from $27.0 billion a year earlier.
In May 2026, remittances recorded the highest monthly inflows of $4.3 billion. These flows remained pivotal, increasing by 9.2 percent to reach $38.1 billion during July-May FY2026 compared to last year.
Monetary Policy and Inflation
The Monetary Policy Committee (MPC) in its decision on June 15, 2026, decided to maintain the policy rate at 11.5 percent. The committee assessed that the impact of the Middle East conflict is now reflected in recent economic indicators, as headline inflation rose to double digits in April and May, while core inflation also edged up along with signs of moderate economic activity. Moreover, the external account remains manageable after a surplus recorded in May. Overall, the MPC assessed that the economic outlook remains broadly the same as in its April 2026 meeting.
During July 1 – June 12 FY2026, money supply (M2) shows a growth of 9.2 percent (Rs 3,725.6 billion) compared to a growth of 7.1 percent (Rs 2,545.7 billion) last year. Within M2, Net Foreign Assets (NFA) of the banking system increased by Rs 1,670.2 billion compared to an increase of Rs 1,397.7 billion last year. Net Domestic Assets of the banking sector increased by Rs 2,055.4 billion compared to an increase of Rs 1,147.9 billion last year.
Government Borrowing and Stock Market
Under borrowing for budgetary support, the government borrowed Rs 1,797.2 billion compared to Rs 3,212.4 billion last year. The private sector borrowed Rs 873.3 billion compared to Rs 676.6 billion last year.
Pakistan’s equity market witnessed bullish trends at the Pakistan Stock Exchange (PSX) in May. The KSE-100 Index gained 10,969 points, closing at 173,963, as the market maintained a firm upward trajectory supported by improved geopolitical sentiment after the ceasefire and peace talks, also bolstered by local and institutional buying activity. Market capitalization increased by Rs 1,143.49 billion, reaching Rs 19,166.27 billion by the end of the month.
Employment and GDP Growth
In May 2026, the Bureau of Emigration and Overseas Employment registered 34,946 workers for employment abroad.
“Pakistan’s economy is concluding FY2026 on a stronger footing, with improved macroeconomic stability and sustained recovery in economic activity. Real GDP growth has reached 3.7 percent, the highest in four years, while the size of the economy has expanded to $452.1 billion. Despite early year flood-related disruptions and subsequent volatility in global commodity markets, stabilization gains were preserved, growth remained broad-based across agriculture, industry and services, and average inflation stayed in single digits within the target range,” the ministry noted.
