ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have revised the projection of CPI-based inflation upward in the wake of the ongoing war in the Gulf region for the current fiscal year, with inflation now expected to touch 7.5 percent on average in 2025-26.
Earlier, the Ministry of Finance had projected CPI-based inflation at around 6.1 percent for the current fiscal year. The current account deficit (CAD), which remained a hot topic during the recently concluded review talks between the IMF and the Pakistani side, is envisaged at 0.5 percent of GDP, equivalent to $2 billion for 2025-26. At one point, the Planning Ministry had developed two scenarios projecting the CAD touching $2.8 billion; however, Federal Secretary Finance Imdad Ullah Bosal, along with the economic advisor, convinced the IMF that the CAD would be curtailed at $2 billion by the end of June 2026.
Pakistan will have to pay $1.3 billion on April 8 or 9, 2026, upon the maturity of the Eurobond, amid the inability to launch any international bond, including Eurobond, Sukuk bond, or Chinese Panda bond, so far in the outgoing fiscal year. Although Minister for Finance Muhammad Aurangzeb made announcements several times, the Panda bond has yet to be launched.
Pakistan’s economy is projected to reach Rs141.66 trillion in the next fiscal year 2026-27, compared to Rs126.9 trillion by the end of June 2026. The country’s GDP growth is projected at 4.2 percent and CPI-based inflation at 7.5 percent for 2025-26. GDP growth is projected at 5.1 percent and inflation at 6.5 percent for the next budget 2026-27.
According to the Ministry of Finance, during Q1 of FY2026, GDP growth is estimated at 3.71 percent (up from 1.56 percent last year), driven by a 2.9 percent increase in agriculture, 9.4 percent growth in industry, and 2.4 percent growth in the services sector.
Building on this initial momentum, signs of further improvement in economic activity are expected from Q2 onward, supported by easing monetary policy, which is expected to facilitate expansion of credit to the private sector. Further growth in PSDP spending (21 percent in H1 of FY2026), an increase in company incorporations (29 percent in H1 of FY2026), and a significant rise in agricultural machinery imports (27.3 percent from July–November FY2026) indicate expansion and scaling up of production capacity.
Large-Scale Manufacturing (LSM) registered growth of 5.02 percent during July–October FY2026, with 16 sectors recording growth, including textile, wearing apparel, non-metallic mineral products, food, coke and petroleum products, electrical equipment, automobiles and tobacco.
The services sector is likely to strengthen on the back of trade and transport, finance, digitalization, e-commerce, and fast-growing ICT exports. On the supply side, in the agriculture sector, the major crops of rice, maize and sugarcane have observed growth compared to last year, and wheat is also expected to achieve the target. In Q1 of FY2026, livestock also grew by 6.3 percent compared to last year.
These sectors are expected to perform consistently in the upcoming quarters. Anticipating continued positive momentum in domestic economic activities, the economy is expected to grow at 4.0 percent during FY2026 and 5.1 percent during FY2027.
In the aftermath of the Gulf war, inflationary pressure is mounting, and it is estimated that inflation may go up to 7.5 percent on average for 2025-26. In the next fiscal year, CPI-based inflation is expected to decline, provided the war ends early and the fuel supply chain is fully restored. Moreover, the SBP will have to remain vigilant to address inflation in the country over the medium term.
