Pakistan’s economy continues to demonstrate resilience and sustained growth momentum in the first half of FY2026, according to the latest economic update for January 2026. Large-scale manufacturing has shown a marked recovery, inflationary pressures remain contained, and fiscal management continues to deliver positive outcomes, signaling overall macroeconomic stability.
The large-scale manufacturing (LSM) sector has remained a key driver of growth, posting consistent expansion during the first half of the fiscal year. Industrial activity has been broad-based, with multiple sectors, including textiles, apparel, cement, automobile, and petroleum products, contributing to positive performance. The automobile sector has recorded significant production gains, while cumulative cement dispatches have also increased, reflecting strong domestic demand and industrial recovery.
Inflationary trends in Pakistan have shown a gradual decline, providing relief to consumers and improving purchasing power. Consumer Price Index (CPI) inflation stood at 5.6 percent year-on-year in December 2025, down from 6.1 percent the previous month, while average inflation for the first half of FY2026 is measured at 5.2 percent, compared to 7.2 percent during the same period last year. Key contributors to inflation include education, health, housing, and non-perishable food items, while perishable food prices have shown a downward trend.
Fiscal performance has remained on track, with the government achieving a fiscal surplus during July–November FY2026. Gross federal revenue has increased by 7.8 percent, supported by strong growth in FBR taxes and non-tax revenues. At the same time, total expenditure declined by 6.2 percent, aided by reduced current expenditure and mark-up payments. A consolidated fiscal surplus of 0.8 percent of GDP and a primary surplus of 2.8 percent reflect improved budgetary discipline and sustainable financial management.
The external account has remained supported by resilient remittance inflows and moderate import demand. During July–December FY2026, remittances rose 10.6 percent to $19.7 billion, with significant contributions from Saudi Arabia and the UAE. Although the current account posted a deficit of $1.2 billion, gains in key exports, particularly in knitwear, garments, and bedwear, have helped offset pressures. Foreign direct investment totaled $808.1 million, with sectors such as power and financial services attracting the most inflows.
Monetary and capital market indicators point to an improving business environment. Money supply growth of 3.7 percent reflects positive liquidity conditions, while credit demand from the private sector has increased, supporting sustained LSM growth. The Pakistan Stock Exchange has shown strong recovery, with the KSE-100 Index closing at 188,587 points as of 26 January 2026, indicating renewed investor confidence and market optimism.
Overall, Pakistan’s economy demonstrates a solid foundation for continued growth, underpinned by a recovering industrial sector, controlled inflation, sound fiscal management, and robust external support through remittances and foreign investment. Policymakers remain focused on maintaining macroeconomic stability while supporting private sector-led growth and sustainable development.
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