By M Qadeer
LAHORE: Pakistan’s economy during fiscal year 2025–26 presented a mixed and uneven outlook, where underlying structural pressures—particularly rising poverty, unemployment, export weakness, and high public debt—remained prominent despite signs of macroeconomic recovery and stabilization.
According to the Pakistan Economic Survey 2025–26, poverty levels increased to 28.9 percent, reflecting continued stress on household incomes amid inflationary pressures, climate-related shocks, and adjustment measures in the economy. Inequality also rose during the period, indicating that the benefits of economic recovery were not evenly distributed across different income groups and regions.
Labour market conditions further highlighted economic strain. The unemployment rate increased to 7.1 percent, with the total number of unemployed persons reaching 5.9 million. While the overall labour force expanded, job creation failed to keep pace with the growing workforce, raising concerns about employment absorption capacity and the quality of available opportunities, particularly for youth entering the job market.
External trade performance also remained under pressure. Manufacturing exports declined amid weak global demand and continued geopolitical tensions affecting supply chains and international trade flows. The overall merchandise export sector faced constraints, contributing to a widening trade imbalance during the year. Import demand, meanwhile, increased with domestic economic recovery, further intensifying external sector pressures.
Public finances reflected continued debt-related challenges despite fiscal consolidation efforts. Total public debt reached Rs 83.3 trillion by March 2026, while external public debt stood at approximately US $92.2 billion. Although debt growth slowed compared to previous years due to improved fiscal discipline and a stronger primary surplus, the overall debt stock remained a significant burden on fiscal space and long-term development spending capacity.
These challenges were further compounded by external shocks, including volatility in global energy markets and climate-related disasters. The 2025 floods caused significant economic losses and disrupted agricultural output, adding pressure on already vulnerable communities and contributing to inflationary impacts on essential goods.
Despite these concerns, the economy also demonstrated areas of resilience and recovery during FY 2025–26. Gross Domestic Product (GDP) growth improved to 3.70 percent, compared to 3.18 percent in the previous year, supported by better performance across agriculture, industry, and services sectors.
Industrial activity strengthened notably, with Large Scale Manufacturing recording a growth of 6.11 percent, while the services sector remained the largest contributor to overall GDP. Agriculture also expanded by 2.89 percent, recovering from previous setbacks and benefiting from improved production of key crops such as wheat, rice, and sugarcane.
Fiscal performance showed marked improvement, with the fiscal deficit narrowing sharply to 0.7 percent of GDP from 2.6 percent in the same period last year. The primary surplus also improved to 3.2 percent of GDP, reflecting better revenue mobilization and reduced interest expenditures.
On the external side, Pakistan recorded a marginal current account surplus of US $72 million, supported by strong remittance inflows of US $30.3 billion. These inflows played a crucial role in stabilizing external financing needs and supporting exchange rate stability.
Financial markets also reflected improved sentiment, with the KSE-100 index rising by 18.4 percent during the period under review. Investor confidence was supported by macroeconomic stabilization, policy continuity, and progress under ongoing reform programmes.
The information technology sector remained a key growth driver, with ICT exports increasing by nearly 20 percent, while the freelance economy recorded strong expansion. Broadband penetration and digital infrastructure also continued to improve, strengthening Pakistan’s position in the global digital services market.
