Despite improved macroeconomic stability in first half of FY26, war in Middle East poses significant risks to outlook: SBP

While macroeconomic stability improved in the first half of fiscal year 2026, the war in the Middle East poses risks to the economic outlook amid heightened uncertainty, the State Bank of Pakistan (SBP) said on Tuesday. The SBP released its Half Year Report 2025-26 (The State of Pakistan’s Economy) on Tuesday, showing that Pakistan’s macroeconomic stability strengthened in the first half of the fiscal year despite headwinds from uncertainty regarding global trade and domestic floods. However, the report noted that the war in the Middle East poses “significant risks to the macroeconomic outlook”, as supply chain disruptions are likely to affect the inflation trajectory, external trade and remittance flows, and the country’s economic activity, according to an SBP press release. Discussing the outlook for FY26, the report notes that the latest data on high-frequency indicators — including Purchasing Managers’ Index (PMI), LSM and construction — suggests that economic activity maintained the momentum through February before the war began to weigh on output in the remaining month of FY26. “Therefore, SBP projects real GDP growth close to the lower bound of the earlier projected range of 3.75 to 4.75 per cent for FY26,” the statement said, adding that despite momentum in economic activity and higher commodity prices, the current account deficit is now expected to be close to the lower bound of the earlier projected range of 0-1pc of GDP. However, a surge in international oil prices and its impact on other commodity prices are expected to keep the National Consumer Price Index (NCPI) inflation above the upper bound of the medium-term target range of 5-7pc for most of FY27. The report highlights that economic indicators improved significantly in the first half of FY26. It noted that average NCPI inflation eased further, while SBP’s FX purchases and net financial inflows shored up external buffers. “These outcomes were supported by prudent monetary and fiscal policies, ongoi