The economic recovery of the country remained on track in the first quarter of FY2026, driven by improved macroeconomic stability, fiscal discipline, and stronger reform momentum under the government’s economic programme, Finance Ministry said on Monday.
According to the Monthly Economic Update & Outlook released by the Finance ministry, the recent Staff-Level Agreement with the International Monetary Fund (IMF) reaffirmed strong policy performance and “steadfast reforms commitment,” helping restore market confidence.
It said sovereign default risk had “declined sharply” over the past 15 months, while Pakistan earned an “Excellent” sustainability alignment score from Sustainable Fitch on its financing framework.
According to the report, the industrial performance showed resilience, supported by manufacturing recovery. Large-Scale Manufacturing (LSM) registered 4.4 percent growth during Jul-Aug FY2026, driven by higher output in cement, automobiles, electrical equipment and other key sectors.
Cement dispatches increased 16.2 percent in Q1-FY2026, while automobile production posted substantial gains across cars, trucks, buses, and utility vehicles.
The report acknowledged challenges arising from recent floods, estimating Rs. 430 billion in losses to major crops including rice, cotton, sugarcane and vegetables. However, recovery efforts were said to be underway, supported
by 19.5 percent growth in agricultural credit disbursement and higher imports of machinery and fertilizer usage during the Kharif season.
Inflation remained contained compared to last year, although headline inflation edged up to 5.6 percent in September 2025 due to temporary food supply disruptions. During Jul-Sep FY2026, inflation averaged 4.2 percent, significantly lower than 9.2 percent in the same period of FY2025.
On the fiscal side, the government recorded a federal surplus of Rs. 1,509.2 billion during Jul-Aug FY2026, reversing a deficit from last year, as revenues increased sharply and expenditures remained contained. Non-tax revenues rose more than sevenfold, while FBR tax collection grew 12.5 percent in the first quarter.
Exports and remittances strengthened the external sector. Goods exports increased 6.5 percent to $7.9 billion and workers’ remittances rose 8.4 percent to $9.5 billion during Jul-Sep FY2026. A current account surplus of $110 million was recorded in September 2025 after earlier deficits. IT exports grew 20.4 percent, while foreign exchange reserves stood at $19.9 billion as of October 17.
Financial markets demonstrated robust performance, with the KSE-100 Index reaching record highs and market capitalization expanding significantly over the period under review.
The report maintained an optimistic but cautious outlook, noting that economic recovery is expected to continue, supported by structural reforms, privatization progress, and CPEC Phase 2.0 projects aimed at enhancing industrial capacity and private-sector participation.