Macroeconomic fundamentals strengthen as growth outlook improves in Q3: Finance Ministry

ISLAMABAD, (UrduPoint / Pakistan Point News - 27th Feb, 2026) Pakistan’s economy entered the third quarter of fiscal year 2025-26 with strengthened macroeconomic fundamentals and significantly improved growth prospects, the Finance Ministry said in its latest report released on Friday, expressing confidence that the ongoing momentum would further accelerate in the remaining months of the fiscal year and steer the country toward sustainable economic growth.

“Exchange rate stability, sustained growth in workers’ remittances and rising IT exports have contributed to a manageable current account position-collectively strengthening the external sector position,” says Monthly Economic Update and Outlook for February 2026.

It says, inflation remained within the target range, while monetary easing reduced borrowing cost across the economy supporting overall financing conditions.

High-frequency indicators show a considerable pickup in output whereas fiscal consolidation has improved, with surplus in both fiscal and Primary balances. In parallel, a size-able portion of public debt was retired ahead of schedule marking a significant step in prudent debt management.

Alongside these improvements, Rs38 billion Ramadan Relief Package has enhanced the country’s social safety net. Overall, the growth prospects have improved significantly, with momentum likely to strengthen in the remaining fiscal year, leading towards sustainable economic growth.

Giving breakup details, the report says, Large-Scale Manufacturing (LSM) registered a growth of 4.8 percent during Jul-Dec FY2026 against the contraction of 1.8 percent last year.

The Consumer Price Index (CPI) inflation recorded at 5.8 percent on Year-on-year basis in January 2026 as compared to an increase of 5.6 percent in the previous month and 2.4 percent in January 2025. On average during Jul-Jan FY2026, it stood at 5.2 percent as against 6.5 percent during the same period last year.

The government’s strategy to optimize revenue collection and improve expenditure management is reflected in the overall fiscal position during Jul-Dec FY2026.

Total revenue increased by 9.4 percent and reached Rs10,683.6 billion, which was contributed by growth in both tax and non-tax revenues by 10.

9 percent and 7.0 percent, respectively.

On the other hand, total expenditure declined by 10.3 percent to Rs10,141.7 billion. This contraction was mainly driven by curtailment of current expenditure, which fell by 5.2 percent on account of 30.7 percent decline in markup expenditure.

Development expenditure, on the other hand, increased by 43.2 percent, largely contributed by provincial development spending.

Likewise, in January 2026, the current account recorded a surplus of $121.0 million, bringing the aggregate position during July-January FY2026 to a deficit of $1.1 billion, compared to a surplus of $0.6 billion recorded last year. Goods & services export recorded at $23.9 billion compared to $24.1 billion last year, of which goods export stood at $18.3 billion.

Remittances were up 11.3 percent to $23.2 billion, led by inflows from Saudi Arabia (23.5% share) and UAE (20.6%). Net FDI recorded at $981.4 million. main sources of net inflows were from China ($495.5 million) and Hong Kong ($188.4 million).

Meanwhile, during the Rabi season 2025-26, wheat has been sown on an area of around 23.1 million acres, compared to the target of 23.8 million acres, with targeted production at 29.7 million tonnes.

The report says economic activity is expected to maintain its upward trajectory in FY2026, supported by sustained macroeconomic stability, easing inflationary pressures, and an improved fiscal position.

The accommodative monetary policy, alongside continued fiscal consolidation and structural reforms, is likely to reinforce business confidence and private sector activity.

Inflation is expected to remain within the range of 6.0-7.0 percent in February. Growth is projected to be driven by a rebound in LSM, improved remittances, and resilient agricultural performance, while the external sector is expected to remain manageable amid stable exchange rate and contained current account pressures.

Meanwhile, downside risks persist, particularly from geopolitical uncertainties and global commodity price volatility. However, the prudent macroeconomic management is expected to safeguard the stability, it adds.