Pakistan’s Economy in Fiscal Year 2025-26: Macroeconomic Stabilization and the Challenge of Sustainable Growth

This analysis by Zafar ul Hasan Almas, former Joint Chief Economist and Senior Research Associate, IPS; and Dr. Asim Ehsan, Senior Research Officer, IPS, examines Pakistan’s economic performance during FY2025-26, highlighting significant macroeconomic stabilization alongside persistent structural vulnerabilities. The policy insight assesses economic growth, fiscal consolidation, inflation, investment, public debt, and external-sector performance. It notes that while lower inflation, a reduced fiscal deficit, and higher foreign-exchange reserves indicate improved stability, weak exports, declining foreign direct investment, and rising import pressures continue to threaten the recovery. Importantly, the analysis argues that Pakistan’s key challenge for FY2027 is to sustain growth without renewed foreign-exchange pressures through stronger exports, productive investment, revenue reforms, and reduced dependence on external financing.