The release of the Pakistan Economic Survey (PES) 2025-26 has provided an important snapshot of the country’s economic performance ahead of the federal budget. The survey presents a mixed picture: one of notable macroeconomic stabilisation and improved fiscal management on the one hand, and persistent structural weaknesses and developmental shortcomings on the other. While the economy has undoubtedly made progress compared to previous years, the data also underscores how far Pakistan still has to travel before it can claim to have achieved sustainable and inclusive growth.
According to the survey, Pakistan’s economy grew by 3.7 per cent during FY26, an improvement over last year’s growth rate of 3.18 per cent. Although this performance fell short of the government’s target of over 4 per cent, it nevertheless reflects a degree of resilience in the face of considerable domestic and international challenges. Government officials have attributed part of the shortfall to the escalating conflict in the Middle East, which disrupted energy markets and increased economic uncertainty. Even so, the growth achieved during the year was supported by effective macroeconomic management, relative exchange rate stability, improvements in large-scale manufacturing, a resilient agricultural sector and the continuation of reforms under the IMF’s Extended Fund Facility programme.
One of the most encouraging aspects of the survey is the progress made in restoring fiscal discipline. The fiscal deficit narrowed significantly to 0.7 per cent of GDP during the July-March period, compared to 2.6 per cent during the same period last year. Improved tax collection, higher non-tax revenues and reduced debt-servicing costs all contributed to this outcome. Such improvements suggest that policymakers have succeeded in bringing a greater degree of order to public finances after years of economic turbulence and fiscal stress.
Yet beneath these positive indicators lie vulnerabilities that cannot be ignored. Inflation, which had remained relatively contained at an average of 6.2 per cent during most of the fiscal year, began rising sharply as external pressures intensified. It climbed to 7.3 per cent in March before reaching 10.9 per cent in April, largely due to the surge in global energy prices triggered by instability in the Middle East. Similarly, the current account, which had posted a modest surplus of $72 million during the first nine months of the fiscal year, slipped back into deficit as Pakistan’s heavy dependence on imported fuel exposed the economy to rising international prices. These developments serve as a reminder that despite recent gains, Pakistan remains highly vulnerable to external shocks.
The broader lesson emerging from the survey is that macroeconomic stability, while necessary, is not sufficient. Stability creates the conditions for growth, but it does not automatically generate prosperity. Pakistan’s economy may have stepped back from the brink, yet the country continues to face deep-rooted structural challenges that threaten its long-term development prospects. The National Economic Council (NEC), meeting shortly before the release of the survey, was informed that Pakistan continues to lag behind regional and comparable economies across a range of key development indicators.
The social realities are sobering. Nearly 29 per cent of the population continues to live below the poverty line, while unemployment remains elevated. More than 25 million children remain out of school, depriving the country of the human capital required to compete in an increasingly knowledge-based global economy. Literacy levels remain alarmingly low, with roughly one-third of the population unable to read or write. Meanwhile, rapid population growth continues to place enormous pressure on already stretched resources, public services and infrastructure.
Equally troubling is the continued stagnation of exports and investment, two of the most important engines of growth for any developing economy. Countries that successfully attract investment and expand exports do so by creating an environment where businesses can operate efficiently, infrastructure is reliable and human capital is adequately developed. Pakistan continues to struggle in these areas. Investors naturally compare opportunities across countries, and when basic necessities such as affordable energy, water security, quality education and efficient public services remain inconsistent, investment is likely to flow elsewhere.
Against this backdrop, the decision by the NEC to reduce the national development outlay by over Rs1 trillion for the upcoming fiscal year raises serious questions. Development spending is not merely another budgetary item; it is an investment in the country’s future productive capacity. Roads, schools, hospitals, water systems, energy infrastructure and technological advancement all depend upon sustained public investment. Cutting development expenditure may help ease immediate fiscal pressures, but it risks undermining the foundations of future growth.
If fiscal constraints limit the government’s ability to spend more on development, then policymakers should at least seek to minimise the burden on ordinary citizens. Households and businesses have already endured years of inflation, higher utility costs and increased taxation. Excessive reliance on direct and indirect taxes could further weaken consumer demand and slow economic activity at a time when stronger growth is urgently needed. Yet Pakistan’s commitments under international financial arrangements leave policymakers with limited room for manoeuvre, making budgetary choices particularly difficult.
Ultimately, the Pakistan Economic Survey tells a story of cautious progress rather than transformation. The country has succeeded in restoring a measure of economic stability and avoiding the crises that seemed imminent only a few years ago. However, stability alone cannot solve Pakistan’s developmental challenges. Without stronger growth, higher investment, better educational outcomes and sustained efforts to reduce poverty, the benefits of economic recovery will remain limited. The challenge for policymakers is therefore not merely to preserve stability, but to convert it into meaningful and broad-based development. The upcoming budget will reveal whether the government is prepared to take that next step.
Shafaqna Pakistan
pakistan.shafaqna.com
Note: Shafaqna do not endorse the views expressed in the article
