Pakistan economy set to sustain recovery momentum in FY27

September 01, 2026 (MLN): Pakistan's economy is expected to sustain its recovery momentum in the coming months, backed by improving macroeconomic fundamentals, continued fiscal discipline, and a stable financial environment, according to the Finance Division's Monthly Economic Update and Outlook for August 2026.

Inflationary pressures may persist somewhat in the near term as recent price movements and shifts in international commodity and energy markets continue to pass through to the domestic economy.

External sector performance is projected to remain broadly supportive, driven by improved exports particularly textiles sustained remittance inflows, and ongoing export facilitation measures, trends expected to ease pressure on the balance of payments and support reserve adequacy.

Maintaining policy discipline and advancing structural reforms will remain critical going forward to strengthen the economy's resilience to external shocks and preserve the gains achieved in macroeconomic stability, sustaining inclusive growth.

Pakistan entered FY2027 on a stronger macroeconomic footing, supported by strengthened fiscal buffers, enhanced economic stability, and improving growth prospects stemming from sustained stabilization efforts.

Fiscal consolidation was particularly strong, with the overall fiscal deficit narrowing to 2.6% of GDP, its lowest level in more than two decades, while the primary surplus reached 2.9% of GDP, marking the third consecutive annual primary surplus.

Prudent expenditure management and lower markup payments contributed significantly to the improved fiscal outturn, while Large Scale Manufacturing expanded by 4.98% during FY2026.

The positive momentum continued into the opening month of FY2027. Alongside relative exchange rate stability and continued macroeconomic discipline, easing price pressures have helped preserve the gains in overall stability and provide a more supportive environment for economic activity.

The external sector also made a strong start to FY2027. Workers' remittances increased to $3.63bn in July 2026, up 13% from a year earlier and 4.5% from the previous month. Goods exports recorded at $3.01bn in July 2026, up 9.4% year-on-year and 16.9% from the previous month, according to SBP.

The simultaneous improvement in remittances and exports reinforced foreign exchange inflows and provided an important buffer to the external account amid continued global uncertainty.

Pakistan's technology sector continued to strengthen as a source of export earnings and diversification, with IT exports reaching $417mn in July 2026, up 17.8% year-on-year, following record earnings of around $4.6bn in FY2026.

Continued investment by major global technology firms, progress in domestic technology manufacturing, policy support for IT exporters, digital payment reforms, and the launch of 5G services are contributing to a stronger digital ecosystem, creating greater opportunities for skills development, technology services, and higher value-added exports.

The improvement in Pakistan's macroeconomic fundamentals also received external recognition in August, as Moody's upgraded the country's rating to B3 from Caa1, with a stable outlook.

Risks remain, particularly from geopolitical uncertainty and global energy prices and their potential implications for the external account, underscoring the need for continued prudent macroeconomic management and reform implementation to safeguard stability and sustain growth momentum into FY2027.

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