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Vani Vyshnavi Jupudi
31 July 2026 |
On 11 June 2026, a day before the federal budget, Finance Minister Muhammad Aurangzeb unveiled the Pakistan Economic Survey 2025-26 in Islamabad. Flanked by Planning Minister Ahsan Iqbal and Information Minister Attaullah Tarar, he framed the year as a test of resilience against three external shocks: tariff-related trade uncertainty at the start of the fiscal year, the 2025 monsoon floods, and the Middle East conflict that broke out in the third quarter. The headline was real GDP growth of 3.70 per cent, the highest in four years and up from 3.18 per cent in FY2025, though still short of the government's own 4.2 per cent target. Aurangzeb blamed the miss on the regional conflict, saying growth had been on course to cross 4 per cent before it. His phrase for the year was a move "from stabilisation to growth." Yet the same document records rising poverty, higher unemployment and a shrinking export base, and it was this gap, between the macroeconomic numbers and what reached households, that most of the Pakistani and international commentary fixed on.
Following are the six takeaways.
1. Growth returned, but it was narrow
Of the 3.70 percentage points, services alone accounted for 2.39, more than agriculture (0.68) and industry (0.64) put together. The single fastest-growing line in the national accounts was general government consumption, up more than 18 per cent, even as the net contribution of exports fell. Agriculture did better than expected, growing 2.89 per cent against 1.53 per cent the year before, with the crop sub-sector clawing back to 1.44 per cent after a contraction based on wheat, rice, and sugarcane. But the shape of the growth matters as much as the number. It came from services and the state's own spending, not from the tradeable, employment-generating sectors, which is why the recovery has not yet added up to structural change.
2. The fiscal turnaround, and how much of it holds
If the survey has a genuinely strong claim, this is it. The fiscal deficit narrowed to 0.7 per cent of GDP during July-March FY2026, down from 2.6 per cent a year earlier, and the primary surplus climbed to 3.2 per cent of GDP, or Rs 4,091.5 billion, which the survey called "historic." Most of that came from a 23.2 per cent drop in markup payments and a 10.1 per cent rise in Federal Board of Revenue (FBR) collection, achieved under the discipline of the International Monetary Fund (IMF) Extended Fund Facility (EFF). The harder question is durability. The FY2027 budget already projects the primary surplus slipping towards 2 per cent as one-off gains, such as elevated State Bank of Pakistan profits, normalise, which suggests the peak of consolidation may have passed.
3. The external account balanced on remittances, not exports
That fiscal discipline was not matched on the trade side. The current account managed a surplus of just USD 72 million, a sharp fall from the USD 1.7 billion of the previous year, and it was remittances that held the line, rising 8.2 per cent to USD 30.3 billion with a record monthly inflow of USD 4.25 billion in May 2026. Exports, meanwhile, went the other way. Merchandise exports fell around 8 per cent and the trade deficit widened to USD 27.9 billion. Aurangzeb reached for the Planning Minister's phrase, an "export emergency," tracing much of the decline to a USD 1.5 billion drop in food exports led by rice and sugar, and to a further USD 1 billion lost to the closure of the border with Afghanistan. On the remittance question he was unapologetic: "This is not an and/or discussion. This is an and/and discussion," treating remittances as a permanent feature of the external position while accepting that exports have to grow.
4. Information technology was the one clear bright spot
The exception to the export weakness came from IT. Information technology (IT) export remittances rose 19.7 per cent to USD 3.38 billion over July-March, and freelancer exports jumped 51 per cent to close on USD 900 million, which is where the government has parked much of its future-growth pitch, alongside a 5G spectrum auction on 10 March 2026 that raised about USD 509.6 million. The scale keeps it honest, though. Indian commentary noted that Pakistan's IT exports for the year are of an order India's IT services sector earns in roughly a fortnight, which says less about the growth rate than about how low the base still is.
5. The recovery did not reach households
This is the takeaway that sits least easily with the rest. Even as the aggregates improved, the poverty rate rose to 28.9 per cent in 2024-25, meaning close to one in three Pakistanis now lives at or below the line, up from 21.9 per cent in 2018-19. Inequality moved the same way, the Gini coefficient rising from 28.4 to 32.7 over that period. Unemployment reached 7.1 per cent and more than 25 million children remain out of school. Growth went up while deprivation deepened, which is the plain version of the "jobless growth" reading that ran through the independent coverage, and it is the hardest fact for the survey's headline to absorb.
6. Inflation eased, but the external shock left it exposed
Prices told a similar story of a good year with a fragile end. Average inflation for July-April FY2026 came in at 6.2 per cent, far below the crisis-era peaks, until the Middle East conflict pushed global oil prices up and it jumped from 7.3 per cent in March to 10.9 per cent in April. The State Bank answered by raising the policy rate to 11.5 per cent. The oil import bill rose by about USD 1 billion in a single month before easing off, a short, sharp reminder of how little it takes for a regional flare-up to reach domestic prices.
To conclude:
Read together, the takeaways describe a real step back from the brink. Growth, the deficit, reserves, and the equity market all moved the right way, and the effort behind them was not trivial. What the survey cannot show is that stabilisation has become development. Growth is being supported by stability rather than by a surge in investment, which remains at a mere 14.4 percent of GDP. Moreover, the underlying structure has not changed: remittances are being relied upon once again; exports are not increasing as much as they did in the past; and even in a strong year, poverty remains high. The document, together with the FY2027 budget, looks more like an exercise to buy time to transform stability into growth and create jobs for the masses. The question for the next year is whether it will be possible.
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