Inflation in Pakistan is expected to remain within the range of 5 percent to 6 percent in January, reflecting continued macroeconomic stability and positive trends across key economic indicators, according to the Finance Division. In its Economic Update and Outlook report for January 2026, the Finance Division noted that the country successfully completed the first half of fiscal year 2026 with contained inflation, strengthening industrial activity, and improved external buffers.
The report highlighted that consumer price index inflation stood at 5.6 percent on a year-on-year basis in December 2025, easing from 6.1 percent recorded in November. This compares with an inflation rate of 4.1 percent in December 2024. On an average basis, inflation during the July–December period of FY2026 was recorded at 5.2 percent, significantly lower than the 7.2 percent observed during the same period last year, indicating a sustained moderation in price pressures.
Macroeconomic stability during the first half of FY2026 was further supported by robust remittance inflows and strong performance in domestic financial markets. The Pakistan Stock Exchange emerged as one of the top-performing equity markets globally, reflecting improving investor confidence amid easing inflationary pressures and better growth prospects.
The agriculture sector showed a notable recovery, posting growth of 2.9 percent in the first quarter of FY2026 compared to 1 percent in the corresponding period last year. While major crops excluding wheat recorded a contraction of 0.7 percent, this marked a sharp improvement from the 13.1 percent contraction witnessed a year earlier, largely due to relatively lower losses in cotton production. The improved agricultural performance contributed to overall economic resilience despite ongoing structural challenges in the sector.
Industrial activity remained a key driver of growth. Large-Scale Manufacturing registered a growth of 6 percent during July–November FY2026, with the Quantum Index of Manufacturing reaching its highest level for this period since FY2016. Sixteen industrial sectors recorded positive growth, highlighting broad-based recovery. In November 2025 alone, LSM grew by 10.4 percent on a year-on-year basis and by 0.2 percent month-on-month, underlining strengthening industrial momentum.
On the fiscal front, the government achieved a fiscal surplus during July–November FY2026. Gross federal revenue receipts grew by 7.8 percent during the period, driven by a 10.2 percent increase in Federal Board of Revenue collections and a 4.8 percent rise in non-tax revenues. Total expenditure declined by 6.2 percent, primarily due to a 6.4 percent reduction in current expenditure as mark-up payments fell by 21.3 percent. Development expenditure, however, increased by 1.5 percent, indicating continued support for growth-oriented spending.
The external sector showed mixed trends. The current account recorded a deficit of $1.2 billion during July–December FY2026, compared to a surplus of $0.96 billion in the same period last year. Goods and services exports stood at $20.3 billion, broadly in line with last year’s $20.4 billion, with goods exports recorded at $15.5 billion. Services exports were led by IT services, which increased by nearly 20 percent to $2.2 billion. Imports, however, rose to $37.8 billion from $33.5 billion, widening the trade deficit in goods and services to $17.6 billion from $13.1 billion a year earlier.
Workers’ remittances provided critical support to the external account, increasing by 10.6 percent to $19.7 billion during July–December FY2026. The growth was primarily driven by inflows from Saudi Arabia and the UAE, which rose by 23.9 percent and 20.7 percent, respectively. Net foreign direct investment inflows declined to $808.1 million during the period.
Monetary indicators reflected improving domestic conditions. Money supply grew by 3.7 percent during July–December FY2026, compared to a contraction of 0.7 percent in the same period last year. Net domestic assets of the banking sector increased significantly, while the government retired Rs347 billion in borrowing for budgetary support, reflecting improved fiscal discipline.
The Finance Division concluded that Pakistan’s economy remains well positioned to sustain its growth momentum in FY2026. The report attributed this outlook to encouraging performance in large-scale manufacturing, stable inflation, prudent policy measures, ongoing structural reforms, and easing monetary conditions. While the current account is expected to remain in deficit, strong remittance inflows and steady growth in IT and services exports are likely to cushion external pressures and support overall macroeconomic stability.
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