Pakistan’s economy: Stabilisation without transformation

PAKISTAN’S latest Economic Survey and the federal budget for 2026–27 together offer a picture that is at once reassuring and unsettling. The macroeconomic indicators suggest a degree of stabilisation, yet the underlying structure of the economy continues to reflect long-standing vulnerabilities. The country appears to be moving out of immediate economic stress, but it is still far from a phase of sustained and self-reinforcing growth. Economic activity has shown some improvement, with GDP growth rising from 3.18 percent to 3.70 percent and a target of 4 percent set for the coming year. The size of the economy has expanded to Rs 126 trillion, while per capita income has increased to $1,901. These figures point to a gradual recovery in output and income levels. However, when placed in a regional context, Pakistan’s performance remains modest. India continues to grow at around 6 to 7 percent, while Bangladesh maintains steady expansion driven largely by its export-oriented industrial base. Pakistan’s recovery, in contrast, remains uneven and relatively narrow in composition. Inflation, which had eased to 4.7 percent in the previous period, has once again begun to rise, reaching 6.2 percent, with projections suggesting it could move towards 8.2 percent in the next fiscal year. The return of price pressures highlights the fragility of macroeconomic stability. Energy costs, import dependence and exchange rate pressures continue to shape the inflationary outlook. While some regional economies also face similar challenges, Pakistan’s inflation remains particularly sensitive to external shocks and supply-side constraints. On the fiscal side, there has been a notable improvement in discipline. The fiscal deficit has narrowed sharply from 2.6 percent to 0.7 percent, while the primary surplus has also strengthened. This reflects tighter expenditure control and improved revenue performance, much of it aligned with ongoing reform commitments. Yet the federal budget for 2026–27 st