Inflation projected at 8.5% in March

April 01, 2026 (MLN): Inflation is projected to remain within the range of 7.5–8.5 % for March 2026, which signals a relatively stable price outlook even as Pakistan navigates rising global oil prices and heightened geopolitical tensions.

The near-term economic trajectory remains cautiously optimistic, underpinned by improving industrial activity and targeted government interventions. Increased imports of textile machinery, transport equipment, and construction inputs point to a pickup in domestic production.

At the same time, the government is pursuing prudent measures such as maintaining adequate petroleum reserves, managing energy demand, and enforcing fiscal discipline to mitigate external shocks and contain cost pressures.

Economic performance during the first eight months of FY2026 reflects broad-based improvement across key sectors.

The external account showed resilience, with the current account posting a surplus of $427m in February and keeping the cumulative deficit at a manageable $700m during Jul–Feb.

Remittances surged by 10.5 % to $26.5bn, supported by inflows from Saudi Arabia and the UAE, while IT exports grew by 19.7 % to reach $3.0bn, reinforcing Pakistan’s digital export base.

Foreign exchange reserves rose to $21.7bn, including $16.4bn held by the central bank, marking a four-year high and strengthening the country’s liquidity position.

Industrial activity also gained momentum, as Large-Scale Manufacturing (LSM) expanded by 5.8 % during Jul–Jan FY2026, reversing last year’s contraction. Growth was driven by automobiles, wearing apparel, petroleum products, and food sectors.

In January 2026 alone, LSM recorded a strong 10.5 % year-on-year increase. The automobile sector remained particularly robust, with production of trucks and buses rising by 78.4 %, cars by 52.3 %, and two- and three-wheelers by 31.2 %.

Cement dispatches increased by 10.9 % to 34.8m tonnes, reflecting sustained construction activity.

According to the Government of Pakistan Finance Division Monthly Economic Outlook report, fiscal consolidation has been a key achievement during the period.

The fiscal deficit narrowed sharply to Rs. 64.7bn during Jul–Jan FY2026, compared to Rs. 2,070.9bn a year earlier.

Federal revenues grew by 9.3 % to Rs. 11.2 trillion, supported by increases in both tax and non-tax collections, while expenditures declined by 10.7 % due to significant reductions in current spending, particularly markup payments.

The primary surplus improved to 3.2 % of GDP, indicating stronger fiscal discipline. Additionally, FBR tax collection rose by 10.6 % during Jul–Feb FY2026, reflecting improved revenue mobilization.

On the monetary side, conditions remained supportive for growth, with the policy rate held at 10.5 %.

Money supply (M2) expanded by 3.5 %, while private sector credit increased significantly to Rs. 928.7bn, driven by higher demand for business and fixed investment loans.

However, the Pakistan Stock Exchange experienced a bearish phase in February 2026, with the KSE-100 Index declining sharply amid investor concerns over evolving regional conflicts.

Agriculture also showed encouraging trends during the Rabi season 2025–26. Wheat production is targeted at 29.7m tonnes, higher than last year’s 28.4m tonnes, supported by improved sowing conditions and government assistance.

Agricultural credit disbursement rose by 11.1 % to Rs. 1,649bn, while imports of agricultural machinery increased by 17.1 %.

Fertilizer offtake remained strong, with urea rising by 7.1 %, indicating healthy farm activity, although final output will depend on weather conditions at the crop maturity stage.

Despite these positive developments, risks persist. Rising global oil prices could increase the import bill and widen the trade deficit, which already expanded to $23.2bn due to higher imports.

Exports remained relatively stagnant, particularly due to a decline in food exports such as rice. Additionally, geopolitical tensions have introduced uncertainty in financial markets and external conditions.

Overall, while challenges remain on the external front, the combination of improved fiscal management, strengthening industrial output, resilient remittance inflows, and growing IT exports positions Pakistan’s economy to maintain stability and absorb potential shocks in the coming months, laying the groundwork for sustained and inclusive growth.

Copyright Mettis Link News