Geopolitical Risks Hinder Economic Growth Prospects

ISLAMABAD: The Ministry of Finance has presented its Economic Outlook for the year ending March 31, FY26, highlighting a cautiously optimistic economic trajectory despite ongoing uncertainties. Despite these challenges, key macroeconomic measures are expected to steer Pakistan towards sustained growth.

The ministry underlined that while geopolitical and commodity price volatility continue to pose risks, their impact could be mitigated through prudent fiscal management. Specifically, the report forecasts inflation in February at 6-7 percent, a target within reach thanks to an accommodative monetary policy, enhanced macroeconomic stability, and improved fiscal conditions. The projection is bolstered by sustained growth in workers’ remittances and resilient agricultural output.

In terms of economic activity, the outlook projects that Pakistan’s economy will continue on its upward trajectory. Key drivers include a potential rebound in light manufacturing sector (LSM) activity, enhanced remittance inflows, and continued robust performance from agriculture despite lower wheat sowing this season. Notably, Rabi 2025-26 has seen wheat planted on an area of around 23.1 million acres, short of the targeted 23.8 million, but still yielding an expected production volume of 29.7 million tonnes.

The external sector is anticipated to remain stable due to a combination of a firming exchange rate and diminished current account pressures. These improvements are further supported by ongoing fiscal consolidation and structural reforms aimed at bolstering business confidence and private investment. The government’s Rs38 billion Ramazan Relief Package has also enhanced the social safety net, reducing vulnerabilities during this period.

Despite initial concerns over lower wheat sowing areas, steady progress in the use of agricultural inputs—from government-supported seed distribution to increased access to credit, mechanisation, and adequate fertiliser availability—has offset these setbacks. In July-December FY26, the LSM sector experienced a 4.8 percent growth rate, significantly outpacing its year-over-year counterpart at 1.8 percent.

The report also noted an uptick in positive performance across multiple sectors, with notable contributions from automobile manufacturing, apparel production, non-metallic mineral products, food and beverages, coke and petroleum products, electrical equipment, automobiles, and tobacco.

Overall, the outlook is cautiously optimistic that these measures will lead to a stronger growth momentum, positioning Pakistan on a path towards sustainable economic development. The continued improvement in macroeconomic fundamentals, combined with robust sectoral performance and enhanced fiscal management, suggest an improved trajectory for FY26 and beyond.