Middle East crisis poses risks to Pakistan’s economic outlook: SBP
Why this matters: local context for readers following news across Pakistan and the region.
Pakistan’s macroeconomic position improved further during the first half of FY26 despite challenges arising from global trade uncertainty and domestic flooding. The State of Pakistan’s Economy Half-Year Report FY26, however, warned that the ongoing Middle East crisis poses serious risks to Pakistan’s economic outlook, as supply chain disruptions could affect inflation, trade activity, remittance inflows, and overall economic performance. According to the SBP, key economic indicators showed marked improvement in H1-FY26. Average national inflation continued to decline, while foreign exchange purchases by the SBP and financial inflows helped strengthen external reserves. The report attributed the progress to prudent fiscal and monetary policies, structural reforms, favourable global commodity prices, and support under the IMF programme. The SBP maintained a cautious monetary policy stance with a positive real interest rate on a forward-looking basis, while the fiscal account recorded a surplus during the first half of FY26. The improved macroeconomic environment also supported stronger economic growth. Pakistan’s real GDP expanded at nearly double the pace recorded in the same period last year, mainly due to stronger industrial output, followed by growth in the services and agriculture sectors. Rising economic activity also pushed imports higher in volume terms during H1-FY26. Meanwhile, export earnings declined because of a sharp fall in rice exports. However, growing workers’ remittances continued to offset deficits in trade, services, and primary income accounts, helping keep the current account deficit within manageable limits. The report noted that lower international commodity prices, exchange rate stability, a stronger external account position, and cuts in administered electricity tariffs contributed to easing inflation. Average National CPI inflation stood at 5.2 per cent in H1-FY26, around two percentage points lower than the corresponding period last year.