Pakistan posts fastest economic growth in four years as reforms drive recovery

Pakistan has posted its strongest economic performance in four years, with the economy expanding by 3.7 per cent in fiscal year 2025-26 to a record size of $452.1 billion, reflecting a broad-based recovery driven by fiscal discipline, structural reforms and rising investor confidence despite regional geopolitical tensions and devastating floods.

Official economic data released at the close of FY2025-26 showed the country’s per capita income rising by 9 per cent to $1,901, while the fiscal deficit for the July-March period narrowed sharply to 0.7 per cent of GDP, one of the lowest levels recorded in decades. Public debt also declined to 68.5 per cent of GDP, down from 75 per cent in 2023, following an aggressive debt management strategy that retired more than Rs4.7 trillion ahead of maturity.

According to the Pakistan Ministry of Commerce, the economy demonstrated resilience despite disruptions caused by the 2025 monsoon floods and the Iran-Israel-US conflict that erupted in early 2026.

Services sector

The services sector, which accounts for nearly 60 per cent of Pakistan’s economy, grew by 4.09 per cent, its fastest pace in four years, led by strong expansion in information and communication technology services. Industrial output increased 3.51 per cent, while large-scale manufacturing recorded a four-year high growth of 6.1 per cent, supported by gains across most major industries. Agriculture also recovered, growing 2.89 per cent despite weather-related challenges.

Macroeconomic stability continued to improve as average inflation eased to 7.1 per cent, allowing the State Bank of Pakistan to reduce the policy interest rate to 11.5 per cent, almost half the level seen at the beginning of FY2025.

Overseas remittances

External accounts remained stable, supported by record overseas remittances of $41.6 billion, an increase of nearly 9 per cent from the previous year. Pakistan’s current account deficit remained almost balanced at just $139 million, while foreign exchange reserves climbed 45 per cent year-on-year to $18.4 billion by the end of June.

IT and ICT exports

Technology emerged as one of the country’s strongest-performing sectors. IT and ICT exports reached a record $4.6 billion, exceeding the government’s target and growing by 21 per cent over the previous year. Freelancers generated more than $1.76 billion in export earnings, highlighting the rapid expansion of Pakistan’s digital economy.

Stock exchange

Investor sentiment also strengthened significantly. The benchmark KSE-100 Index closed at a record 180,301 points, gaining more than 43 per cent during the fiscal year, while the number of investors in the Pakistan Stock Exchange rose nearly 50 per cent to over 583,000.

Pakistan also regained access to international capital markets after a four-year gap, successfully issuing a $750 million Eurobond and a $250 million Panda Bond, the latter attracting subscriptions five times the amount offered.

Reforms

The government attributed the improved economic performance to wide-ranging structural reforms implemented over the past year. These included tax administration reforms using artificial intelligence, tariff rationalisation, energy sector restructuring, privatisation of major state-owned enterprises including Pakistan International Airlines and First Women Bank, expansion of digital payments, pension reforms and measures aimed at reducing the size of the public sector.

Pakistan’s improving economic fundamentals have also received international recognition. S&P Global upgraded the country’s sovereign credit rating to ‘B’ with a Stable Outlook, its highest level in nine years, citing improved political stability and fiscal consolidation. Moody’s and Fitch Ratings have also maintained stable outlooks after earlier upgrades, while business confidence surveys conducted by Gallup Pakistan showed improving optimism among both businesses and consumers.

Targets

Looking ahead, the government has set a 4 per cent GDP growth target for FY2026-27 and aims to further reduce the fiscal deficit to 3.6 per cent of GDP. Officials say continued fiscal discipline, record remittance inflows, expanding technology exports, renewed foreign investment and ongoing structural reforms are expected to sustain Pakistan’s economic recovery and support long-term investment-led growth.