Pakistan’s economic landscape is witnessing a notable transformation as the federal government successfully narrowed the fiscal deficit to a mere 64.7 billion rupees during the initial seven months of the 2026 financial year. This figure represents a staggering improvement compared to the same period in the previous year, where the deficit stood at over 2 trillion rupees. Finance Minister Senator Muhammad Aurangzeb shared these details with the National Assembly, highlighting that the current deficit now accounts for only 0.05 percent of the national gross domestic product. This fiscal discipline is further underscored by a primary surplus that has climbed to 4,151.6 billion rupees, reaching 3.2 percent of the GDP.
The industrial sector is emerging as a primary engine for this recovery, showing a remarkable expansion of 9.38 percent during the first quarter of the year. This is a sharp contrast to the negligible growth of 0.12 percent recorded during the same timeframe in 2025. Large-scale manufacturing specifically demonstrated its resilience by growing 5.8 percent between July and January, reversing a previous trend of contraction. Beyond industry, the agriculture sector also posted a healthy growth rate of 2.89 percent, while the services sector maintained steady progress at 2.35 percent. These combined performances have pushed the overall quarterly GDP growth estimate to 3.71 percent, more than doubling the 1.56 percent growth seen in the previous year’s opening quarter.
On the inflationary front, the Consumer Price Index shows signs of stabilization, recording an average of 5.5 percent during the July to February window. This cooling of price pressures has assisted the government in managing its debt obligations more effectively. While the public debt-to-GDP ratio was recorded at 70.7 percent with a nominal stock of 80.52 trillion rupees, the Minister noted that interest payments have remained below budgeted expectations. Total interest expenditure for the 2025 period amounted to 8.89 trillion rupees, which was nearly a trillion rupees less than the initial allocation. This fiscal space was created by a significant reduction in the State Bank of Pakistan’s policy rate and proactive measures such as the buyback of high-cost debt securities.
Looking ahead to the second quarter of 2026, the federal government has outlined a strategic borrowing plan to maintain liquidity and meet upcoming obligations. Between March and May, the government intends to borrow 7.8 trillion rupees to address maturities totaling 5.5 trillion rupees. The surplus funds from this borrowing activity are intended to cover current expenditure outflows and bolster national cash reserves. Minister Aurangzeb emphasized that while the targets are set, the final borrowing volumes will be dictated by market participation and bid prices during scheduled auctions. This cautious approach to debt management, combined with rising industrial output and a shrinking deficit, signals a period of calculated stabilization for the national economy.
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