Pakistan’s Economic Survey 2025-26 projects stronger growth, lower inflation and improved fiscal indicators, but economists warn that structural weaknesses, debt burdens and external vulnerabilities continue to challenge sustainable recovery.

Pakistan’s economy has shown signs of stabilization and gradual recovery, with the government’s Economic Survey 2025-26 projecting real gross domestic product (GDP) growth of 3.7 per cent for the outgoing fiscal year despite floods, global trade uncertainties and regional geopolitical tensions.

The survey report says that household income fell 12 per cent in 6 years while poverty rose to 28.9 per cent, with 70 million people living below the poverty line.

The survey, presented by Finance Minister Muhammad Aurangzeb, paints a picture of improving macroeconomic stability while highlighting persistent challenges facing the South Asian nation.

The survey was released ahead of the federal budget and serves as the government’s annual assessment of economic performance across key sectors including agriculture, industry, services, trade, inflation, public finance and employment. According to the report, Pakistan’s economy expanded to approximately $452 billion, while per capita income rose to $1,901 from $1,751 a year earlier.

Growth Improves but Falls Short of Target

The projected GDP growth of 3.7 per cent marks an improvement over the previous fiscal year and represents the fastest pace of expansion in four years. However, it remains below the government’s target of 4.2 per cent, Finance Minister Aurangzeb said. He said this reflected the impact of multiple domestic and international shocks.

Presenting the survey in Islamabad, Aurangzeb said Pakistan had faced several external challenges during the year, including uncertainty over global trade tariffs, devastating floods and regional conflict in the Middle East. Despite these pressures, he said the economy continued its transition “from stabilization to growth.”

Analysts note that the growth rate remains modest compared with regional peers and is still insufficient to absorb Pakistan’s rapidly growing labour force. Nevertheless, the survey suggests that economic reforms undertaken under the country’s ongoing programme with the International Monetary Fund have helped restore macroeconomic stability.

Services Sector Leads Recovery

A sectoral breakdown of the survey shows that the services sector remained the primary driver of economic growth, expanding by about 4.1 per cent during the fiscal year. Agriculture grew by nearly 2.9 per cent despite flood-related disruptions, while industry recorded growth of approximately 3.5 per cent.

The survey highlights a rebound in manufacturing activity, with overall manufacturing expanding by 6.6 per cent and large-scale manufacturing growing by 6.1 per cent. Officials attributed this improvement to lower inflation, a relatively stable exchange rate and easing monetary conditions.

Agriculture, a critical sector that supports millions of livelihoods, continued to face challenges from climate-related disasters, according to the Economic Survey document. However, growth in livestock production helped offset losses in crop production caused by floods and adverse weather conditions.

Inflation and Fiscal Indicators Improve

One of the most significant achievements highlighted in the Economic Survey is the sharp decline in inflation. Average consumer price inflation during the July-May period stood at around 6.7 per cent, a substantial improvement compared with the double-digit inflation experienced in recent years. The government attributed the decline to tighter fiscal management, improved supply conditions and monetary policy measures.

Fiscal indicators also showed improvement. The fiscal deficit narrowed to 0.7 per cent of GDP during the July-March period, compared with 2.6 per cent in the corresponding period of the previous year. Meanwhile, the primary surplus increased to 3.2 per cent of GDP, reflecting stronger revenue collection and expenditure controls.

The survey described the fiscal performance as among the strongest in decades, supported by ongoing reforms, provincial surpluses and improved tax administration. Public debt stood at approximately 83.3 trillion Pakistani rupees by the end of March 2026.

External Sector Shows Resilience

Pakistan’s external sector also displayed signs of resilience. The current account remained largely balanced, with the survey reporting either a small surplus or a limited deficit depending on the reporting period. Workers’ remittances increased by more than 8 per cent year-on-year to approximately $30.3 billion, providing crucial support to foreign exchange reserves and household incomes.

However, the country continues to grapple with a substantial trade deficit. The survey reported a trade gap of more than $23 billion during the first nine months of the fiscal year, underlining Pakistan’s dependence on imports and the need to strengthen export competitiveness.

Economists argue that sustained growth will require greater investment in export-oriented industries, technological modernization and productivity improvements rather than reliance on remittances alone.

Challenges Remain Ahead

Despite the positive indicators, significant challenges remain. Pakistan continues to operate under an IMF-supported reform programme that requires strict fiscal discipline and revenue mobilization. The recently announced federal budget emphasizes debt servicing and defence expenditure while limiting development spending to meet IMF targets.

Rising global oil prices linked to tensions in the Middle East pose additional risks. Pakistan remains heavily dependent on imported energy, making it vulnerable to external shocks that could reignite inflationary pressures and widen fiscal imbalances.

The government has projected growth of around 4 per cent for the next fiscal year, while aiming to keep inflation under control and continue fiscal consolidation. Whether those targets are achieved will depend on global economic conditions, political stability and the success of ongoing structural reforms.

The Economic Survey 2025-26 suggests that Pakistan has moved away from the immediate economic crisis that gripped the country in recent years. Yet experts caution that translating stabilization into sustained and inclusive growth will require deeper reforms, stronger investment and greater resilience against climate and geopolitical shocks.