Inflation projected at 10% in July

July 31, 2026 (MLN): Inflation is projected to remain within the range of 9.0–10.0% for July 2026, signalling a still-elevated but easing price outlook even as Pakistan navigates renewed U.S-Iran tensions and rising global oil prices.

The near-term economic trajectory remains broadly optimistic, underpinned by improving industrial activity and continued fiscal consolidation, as Pakistan's economy enters FY2027 on a stronger macroeconomic footing following the stabilization gains achieved through FY2026.

Real GDP growth has been targeted at 4% for FY2027, an outlook reinforced by S&P Global Ratings' recent upgrade of Pakistan's long-term sovereign credit rating to B from B-, which cited improved institutional capacity, sustained reform implementation, stronger fiscal performance, and a significant rebuilding of foreign exchange reserves, according to the Finance Division's Monthly Economic Update and Outlook for July 2026.

The external account remained broadly balanced, with the current account posting a marginal deficit of $0.14bn for FY2026 as a whole, while June alone recorded a deficit of $649mn against $737mn in the same month last year.

Exports of goods and services held broadly steady at $40.9bn, with services exports rising 18.7% to $10bn even as goods exports slipped 4.6% to $30.8bn.

Imports climbed 9% to $64.5bn, widening the goods and services trade deficit to $35.5bn from $29.6bn a year earlier.

Within exports, raw cotton surged 199.2%, petroleum products rose 54.8%, and cotton yarn gained 12.4%, while transport-sector imports jumped 66.4%.

Workers' remittances reached a record 41.6bn for FY2026, up 8.6%, with Saudi Arabia, the UAE, and the UK the top three corridors.

IT exports hit a record $4.6bn, up 20.6%, reinforcing the sector's growing role in the external buffer.

Foreign exchange reserves rose to $22.7bn as of July 17, including $17.3bn held by the central bank, marking a four-year high, while the rupee strengthened to Rs277.8/ from Rs283.05/$ a year earlier.

Total FDI for the year stood at $3.6bn, though net FDI slipped to $1.6bn amid portfolio outflows; power and financial services drew the bulk of inflows, led by China, Hong Kong, and the UAE.

On the fiscal side, the deficit narrowed sharply to 1.6% of GDP (Rs2,032.8bn) during Jul-May FY2026, against 3.8% (Rs4,278bn) a year earlier, as expenditures fell 9.4% on lower markup payments and reduced development spending.

FBR tax collection rose 10.8% to Rs13,010.4bn for the full year, lifting the tax-to-GDP ratio to 10.3%, while the primary surplus improved to 3.3% of GDP.

The government also advanced its capital-market reform agenda, launching InvestPak and a JazzCash-based Treasury bills facility for retail investors, alongside appointing bank consortiums to support future Eurobond, Sukuk, and dollar-settled PKR bond issuances.

Large-Scale Manufacturing expanded 5.8% during Jul-May FY2026, reversing a 1.1% contraction a year earlier, driven by automobiles, food, wearing apparel, and coke and petroleum products.

Truck and bus production jumped 64.6%, cars 42%, and jeeps and pick-ups 33.4% over the year, while cement dispatches rose 7.2% to 50.5mn tonnes.

Agricultural credit disbursement grew 21.4% to Rs2,791.1bn, and machinery imports rose 23.1%, though the Met Department's forecast of below-normal July-September rainfall raises irrigation and crop-damage risks for Kharif output.

Headline CPI inflation eased to 11.1% YoY in June from 11.7% in May, with full-year average inflation at 7.1% against 4.5% a year earlier; transport and housing/utilities remained the largest contributors.

The Monetary Policy Committee held the policy rate at 11.5% at its July 27 meeting, citing improved high-frequency indicators and easing global oil prices, while flagging risks from the Middle East conflict. Broad money (M2) grew 14.7% for the year, and private sector credit rose to Rs1,463.3bn from Rs1,081.9bn.

The KSE-100 Index gained 6,339 points in June to close at 180,302, lifting market capitalization by Rs1,031.5bn to Rs20,197.8bn; on a full-year basis, the index is up 27.6% from a year earlier.

On the social protection front, Rs519.5bn was disbursed under the BISP during Jul-May FY2026, while the Pakistan Poverty Alleviation Fund extended 7,482 interest-free loans worth Rs535mn in June.

Globally, the IMF's July World Economic Outlook projects growth of 3.0% in 2026 and 3.4% in 2027, with the JP Morgan Global Composite PMI edging up to 52.0 in June.

Renewed U.S-Iran tensions pushed Brent crude to $100.7 per barrel on July 23, underscoring continued volatility in energy markets, which the Finance Division flagged as the principal risk to Pakistan's near-term outlook.

Overall, while risks persist from global energy prices and geopolitical tensions, the combination of improved fiscal management, a rebounding manufacturing sector, resilient remittance inflows, record IT exports, and strengthened forex buffers positions Pakistan's economy to sustain the recovery in economic activity while preserving macroeconomic stability.

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