While the headlines have been full of brutal fuel price hikes and gas and power outages unleashed by the Iran war, Pakistan’s economy has proven to be somewhat resilient to the shocks. This is the case for now at least. The IMF’s growth forecast for the country remains unchanged at 3.6 per cent for FY26 even as the Fund lowered its global growth forecast. While this projection is lower than the officially envisaged target of 4.2 per cent, it is still not recessionary territory. Similarly, inflation is expected to average 7.2 per cent during the ongoing fiscal year and to rise further to 8.4 per cent in the next fiscal year, 2026-27. While these numbers are high and indicate renewed price pressures compared with the 4.5 per cent inflation recorded in the previous fiscal, they are nowhere near the catastrophic levels the country experienced just a few years ago. Surprisingly, the IMF expects unemployment to actually decline from 7.1 per cent to 6.9 per cent during the current fiscal year and further ease to 6.5 per cent in the following year. The IMF’s projections are generally in line with the forecasts of other global financial institutions, with the Asian Development Bank also projecting growth of 3.5 per cent for FY2026 and ratings agency Fitch Ratings affirming Pakistan’s long-term foreign currency issuer default rating at ‘B-’ with a “stable outlook” last Monday.
In more good news, the SBP and the Saudi Fund for Development (SDF) have inked a deal to extend the maturity of a $3 billion deposit placed with the central bank. The development came just a day after Saudi Arabia announced an additional $3 billion deposit to the SBP. So, does this mean that Pakistan has nothing to worry about? Not quite. While the Saudi deposit and deposit extension might help alleviate some of the strain created by the energy crisis, timely assistance from friendly countries is not a viable substitute for an economic strategy that actually brings money into the country on a regular basis. Pakistan has still not found its formula to attract investment and boost exports, the things that its economy really needs. Foreign direct investment actually dropped by 27.0 per cent between last July and this March. And while the current account is still in surplus due in large part to strong remittances, it dropped 16.0 per cent year-on-year in March. While many officials like to tout the nation’s remittance record, sending the country’s workers, including many of its most skilled, abroad to send dollars back home is not a winning play. If it were, this would not be one of the poorest countries in the world.
Another way of looking at the relatively rosy forecasts coming in this month is that there isn’t much further for the economy to fall, aside from a full-on default. Given just how rapidly the country’s population is growing, a 3.6 per cent rise in GDP is somewhat inevitable. In that sense, we have an economy still treading water. And while the political optics might be okay, this has not, is not and will not be enough for an increasingly discontented people. Over the past few years, Pakistanis have seen their bills go up while their paycheques remain the same or decline. Even many of those who have poured their hard-earned money into education find the country lacks the jobs and incomes to make their investment worthwhile. They are busily plotting their escape to wherever will take them, through means fair or foul. While no one is expecting the government to come up with a path to economic success amidst a crisis of this magnitude, the crisis won’t last forever and a path must eventually be found.
