Pakistan’s central bank projected FY26 GDP growth between 3.75% and 4.75% despite global uncertainty and flood risks. The State Bank warned the Middle East war could disrupt inflation, trade, and remittance flows across Pakistan. However, the SBP said the conflict’s broader impact on economic activity would likely remain limited during FY26.
The State Bank of Pakistan released its Half Year Report FY26 on Tuesday, highlighting stronger macroeconomic stability during H1-FY26. Average inflation eased, while foreign exchange reserves improved through SBP purchases and financial inflows. Moreover, prudent fiscal and monetary policies supported economic recovery.
The IMF programme and favourable commodity prices also strengthened economic confidence. Consequently, real GDP growth reached 3.8% during H1-FY26, doubling growth recorded during the same period last year.
The report stated industrial activity drove most economic expansion during the first half. Services and agriculture sectors also contributed to improved growth momentum. Meanwhile, stronger domestic demand increased import volumes during H1-FY26. However, declining rice exports reduced overall export earnings.
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Despite weaker exports, workers’ remittances continued supporting Pakistan’s external account position. These remittances financed large portions of trade and services deficits, keeping the current account deficit at manageable levels.
SBP also warned that rising oil prices could create fresh inflationary pressures during FY27. The report projected National CPI inflation above the medium-term target range for most of FY27. Nonetheless, inflation averaged 5.2% during H1-FY26, remaining lower than last year’s level.
The central bank credited lower electricity tariffs and exchange rate stability for easing price pressures. Additionally, fiscal consolidation reduced interest payments significantly, allowing Pakistan to record its first H1 fiscal surplus since FY02.
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The report stressed that sustainable long-term growth requires deep structural reforms across Pakistan’s economy. SBP identified weak exports, low investment, subdued foreign direct investment, and poor tax collection as major challenges. Furthermore, the report highlighted Pakistan’s vulnerability to climate change despite its minimal contribution to global emissions.
The country remains among the world’s most climate-affected nations, while climate financing and preparedness levels stay insufficient. SBP said stronger climate investments are essential for protecting future economic stability.