Islamabad: Pakistan entered the financial year 2026-27 on a stronger macroeconomic footing as the fiscal deficit narrowed to 2.6 percent of GDP, its lowest level in more than two decades.
The Monthly Economic Update and Outlook for August issued by the Ministry of Finance stated that strengthened fiscal buffers, enhanced economic stability, and improving growth prospects arising from sustained stabilisation efforts the primary surplus reached 2.9 percent of GDP, marking the third consecutive annual primary surplus. Prudent expenditure management and lower markup payments contributed significantly to the improved fiscal outturn. At the same time, economic activity strengthened, with Large Scale Manufacturing expanding by 4.98 percent during FY2026. The positive momentum continued into the opening month of FY2027.
Total revenue increased by 9.9 percent to reach PKR 19,773.9 billion during the year, while expenditures declined by 4.5 percent to PKR 23,087.4 billion. Current expenditure fell by 3.91 percent, mainly due to a 21.8 percent decline in mark-up payments. Development expenditure rose 14.9 percent, contributing to an uptick in economic growth.
CPI inflation moderated to 9.2 percent in July 2026 from 11.1 percent in June, indicating easing price pressures that emerged following the global energy shock. The moderation in inflation, alongside relative exchange rate stability and continued macroeconomic discipline, has helped maintain the policy rate, preserve the gains in overall stability, and provide a more supportive environment for economic activity. The external sector also made a strong start to FY2027. Workers’ remittances increased to USD3.63 billion in July 2026, up 13 percent from a year earlier and 4.5 percent from the previous month.
Foreign exchange reserves remained at a comfortable level of USD 22.6 billion as of August 21, including USD 17.1 billion held by the SBP. Private sector credit also recorded a seasonal retirement of PKR 393.4 billion, against PKR 232.1 billion a year earlier. The Pakistan Stock Exchange remained under pressure during July 2026 amid renewed geopolitical tensions. The KSE-100 Index declined by 4,208 points to close at 176,094. Market capitalization decreased by PKR 442 billion to PKR 19,755.7 billion by end-July.
The report said that Pakistan’s economy is expected to maintain its recovery momentum in the coming months, supported by stronger macroeconomic fundamentals, continued fiscal discipline and a stable financial environment. Inflation may remain somewhat elevated in the near term as recent price pressures and movements in international commodity and energy prices pass through to the domestic economy. For August 2026, CPI inflation is expected to remain in the range of 10 to 11 percent.
