PAKISTAN’S latest Economic Survey and the federal budget for 2026–27 together offer a picture that is at once reassuring and unsettling. The macroeconomic indicators suggest a degree of stabilisation, yet the underlying structure of the economy continues to reflect long-standing vulnerabilities. The country appears to be moving out of immediate economic stress, but it is still far from a phase of sustained and self-reinforcing growth. Economic activity has shown some improvement, with GDP growth rising from 3.18 percent to 3.70 percent and a target of 4 percent set for the coming year. The size of the economy has expanded to Rs 126 trillion, while per capita income has increased to $1,901. These figures point to a gradual recovery in output and income levels. However, when placed in a regional context, Pakistan’s performance remains modest. India continues to grow at around 6 to 7 percent, while Bangladesh maintains steady expansion driven largely by its export-oriented industrial base. Pakistan’s recovery, in contrast, remains uneven and relatively narrow in composition.
Inflation, which had eased to 4.7 percent in the previous period, has once again begun to rise, reaching 6.2 percent, with projections suggesting it could move towards 8.2 percent in the next fiscal year. The return of price pressures highlights the fragility of macroeconomic stability. Energy costs, import dependence and exchange rate pressures continue to shape the inflationary outlook. While some regional economies also face similar challenges, Pakistan’s inflation remains particularly sensitive to external shocks and supply-side constraints. On the fiscal side, there has been a notable improvement in discipline. The fiscal deficit has narrowed sharply from 2.6 percent to 0.7 percent, while the primary surplus has also strengthened. This reflects tighter expenditure control and improved revenue performance, much of it aligned with ongoing reform commitments. Yet the federal budget for 2026–27 still targets a deficit of 3.6 percent of GDP, suggesting that the current improvement, while encouraging, remains vulnerable and dependent on continued policy restraint.
The external account presents a similarly mixed picture. Foreign exchange reserves have strengthened significantly, rising from 16.6 billion dollars to 22.6 billion dollars, providing much-needed stability to the external sector. At the same time, however, the trade deficit continues to widen as imports outpace exports. This imbalance remains one of Pakistan’s most persistent structural challenges. Unlike Bangladesh, which has developed a strong garment export industry, or India, which benefits from a diversified export base including services and manufacturing, Pakistan continues to struggle with export competitiveness and diversification. Social indicators present a more complex and somewhat contradictory trend. Literacy rates have improved and the number of out-of-school children has declined significantly, reflecting progress in basic human development. However, unemployment has risen from 6.3 percent to 7.1 percent, suggesting that economic growth is not yet translating into sufficient job creation. The gap between human capital development and labour market absorption continues to widen, raising concerns about the inclusiveness of growth.
Public debt remains one of the most binding constraints on fiscal space. Total debt has increased from Rs 76 trillion to Rs 83 trillion, while debt servicing continues to absorb a large share of government expenditure. This limits the capacity for development spending and long-term investment in productivity-enhancing sectors. Despite improvements in fiscal management, the weight of accumulated debt continues to shape economic policy choices. Amid these challenges, there are areas of gradual progress. Installed power capacity has increased and the share of non-thermal energy has crossed the 50 percent mark, indicating a slow structural shift in the energy mix. Broadband penetration has also expanded to over 60 percent, reflecting steady progress in digital connectivity. These developments, while incremental, point towards the early foundations of a more modern and digitally integrated economy.
The federal budget for 2026–27, with a total outlay of Rs 18.77 trillion, attempts to balance competing priorities. It provides relief to the salaried class through revised tax slabs and wage adjustments, while also introducing incentives aimed at encouraging investment and export growth, particularly in the information technology sector. Measures related to corporate taxation and real estate are designed to stimulate economic activity. However, development spending remains constrained at around Rs 1 trillion, as a significant portion of resources continues to be absorbed by current expenditures and debt servicing. Despite these efforts, the outlook remains exposed to multiple risks. Inflationary pressures, reliance on imported energy, vulnerability to global commodity price fluctuations, climate-related shocks and continued dependence on external financing all contribute to a fragile macroeconomic environment. These factors underline the fact that while stability has improved, it has not yet been consolidated into resilience.
Overall, Pakistan appears to be in a phase of stabilisation rather than transformation. The progress achieved in recent indicators is real and meaningful, but it remains insufficient to alter the structural trajectory of the economy. The country is moving in the right direction in terms of stabilising key macroeconomic variables, yet the deeper challenge lies in converting this stability into sustained growth driven by exports, productivity and employment generation. Until that shift takes place, Pakistan’s economic story will remain one of cautious progress, where improvement is visible, but completeness is still out of reach.
—The author is a financial, social and economic commentator.
