Pakistan entered fiscal year 2027 on a stronger macroeconomic footing, supported by improved fiscal buffers, greater economic stability and better growth prospects following sustained stabilisation efforts. Fiscal consolidation remained a major feature of the country’s recent economic performance, with the overall fiscal deficit narrowing to 2.6 percent of gross domestic product, its lowest level in more than two decades. The primary surplus reached 2.9 percent of gross domestic product, marking the third consecutive annual primary surplus. Prudent expenditure management and lower markup payments contributed significantly to the improved fiscal outcome, while economic activity also strengthened as Large Scale Manufacturing expanded by 4.98 percent during FY2026.
The improvement in economic conditions continued into the opening month of FY2027, with inflation showing a notable moderation. Consumer Price Index inflation declined to 9.2 percent in July 2026 from 11.1 percent in June, indicating that price pressures were easing after the impact of the global energy shock. The moderation in inflation, together with relative exchange rate stability and continued macroeconomic discipline, helped maintain the policy rate and preserve the broader gains in economic stability. The improvement in price conditions has also provided a more supportive environment for businesses and economic activity as the new fiscal year begins.
Pakistan’s external sector recorded a stronger start to FY2027, with both workers’ remittances and goods exports registering year on year growth. Workers’ remittances increased to $3.63 billion in July 2026, rising 13 percent from the same month a year earlier and 4.5 percent compared with the previous month. Goods exports reached $3.01 billion during July, increasing 9.4 percent compared with July last year and 16.9 percent from the previous month, according to the State Bank of Pakistan. The simultaneous increase in remittances and exports strengthened foreign exchange inflows and provided an important buffer for the external account amid continued uncertainty in global markets.
The technology sector is also becoming a more important contributor to Pakistan’s export earnings and economic diversification. Information technology exports reached $417 million in July 2026, representing an increase of 17.8 percent from the same month last year. The July performance followed record technology export earnings of around $4.6 billion during FY2026. Continued investment by major global technology companies, progress in domestic technology manufacturing, policy support for information technology exporters, digital payment reforms and the launch of 5G services are contributing to the development of the country’s digital ecosystem.
These developments are creating additional opportunities for skills development, technology services and higher value added exports. The continued expansion of technology related activity provides Pakistan with another avenue for generating foreign exchange and diversifying its export base. Growth in information technology exports alongside improvements in digital payments and telecommunications infrastructure is also supporting the broader development of the domestic technology ecosystem.
The improvement in Pakistan’s macroeconomic fundamentals received external recognition in August, when Moody’s upgraded the country’s sovereign rating to B3 from Caa1 while maintaining a stable outlook. The rating upgrade comes as fiscal management, external-sector conditions and economic stability show improvement. However, risks remain from geopolitical uncertainty and global energy prices, particularly because changes in international energy markets can affect domestic inflation and Pakistan’s external account. Continued fiscal discipline and economic reforms will therefore remain important for maintaining the gains achieved so far.
Agricultural activity also showed increased demand for several farm inputs during the opening month of FY2027. Imports of agricultural machinery and implements increased by 25.9 percent during July, reaching $18.2 million compared with $14.4 million in the same month last year. The increase indicates stronger demand for imported agricultural equipment as the farming sector enters the new fiscal year, although weather conditions remain a significant factor for agricultural performance.
Tractor production stood at 1,361 units in July FY2027, while tractor sales increased by 3.9 percent to 1,242 units compared with the same month last year. The increase in sales indicates a modest improvement in demand for agricultural machinery. Combined with the rise in agricultural machinery imports, the figures point to continued activity in the farm equipment segment during the opening month of the fiscal year.
Fertilizer demand, however, remained mixed across major products during the Kharif 2026 period from April to July. Urea offtake reached 2.054 million tonnes, representing an increase of 10.5 percent compared with Kharif 2025. In contrast, DAP offtake stood at 292,000 tonnes, declining 29.9 percent from the corresponding period last year. The reduction in DAP demand may be attributed to its higher prices, indicating that cost pressures continue to influence farmers’ purchasing decisions despite stronger demand for some other agricultural inputs.
Agriculture credit also recorded significant growth during FY2026. Disbursements reached Rs3,231.6 billion during July to June FY2026, increasing 24.7 percent from Rs2,592.2 billion in the previous year. Greater availability of agricultural financing can support farmers in purchasing inputs, machinery and other requirements, while also contributing to wider economic activity in rural areas.
The government has maintained its commitment to supporting farmers through timely access to quality seeds, agricultural credit, fertilizers and modern machinery. These measures are intended to support agricultural production and help the sector achieve its growth targets. However, looming climate risks, including heavy rainfall and floods, could affect agricultural output and create additional pressure on farm activity during the fiscal year.
Overall, Pakistan’s entry into FY2027 reflects improvements across several major areas of the economy. Stronger fiscal management, lower inflation, rising remittances and exports, expanding technology earnings and increased agricultural machinery demand point toward a broader recovery. At the same time, uneven fertilizer demand, global energy prices, geopolitical uncertainty and climate related risks remain important challenges. Maintaining macroeconomic discipline and continuing structural reforms will be essential for sustaining the recovery momentum and strengthening economic activity throughout FY2027.
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