Pakistan’s Economy Shows Signs of Recovery, But Challenges Persist

Karachi: Pakistan’s economy is showing signs of recovery, with inflation rates cooling and a current account surplus emerging, according to Mian Zahid Hussain, a prominent business leader. However, he warned that structural issues and climate-induced disruptions continue to pose significant challenges to sustainable growth.

During the first five months of the fiscal year 2025-26, inflation eased to 6.1% by November, allowing the State Bank to lower interest rates to 10.5% in December. Hussain emphasized the importance of further reducing borrowing costs to support industrial revival, particularly for the Small and Medium Enterprise (SME) sector.

Hussain highlighted the improvement in Pakistan’s external account, which saw a $100 million current account surplus in November, driven largely by strong worker remittances totaling $16.1 billion from July to November. Despite this, Foreign Direct Investment (FDI) fell by 25% to $927 million during the same period, signaling vulnerabilities in the economic recovery.

The Pakistan Stock Exchange (PSX) has experienced significant growth, with the KSE-100 index surpassing 172,000 by mid-December. This bullish trend reflects investor confidence following the successful completion of the IMF’s Second Review under the Extended Fund Facility, resulting in a $1.1 billion disbursement.

On the fiscal front, the Federal Board of Revenue (FBR) reported a 12% increase in tax collection, reaching Rs. 3.8 trillion from July to October, although it fell short of targets. Hussain stressed the need to broaden the tax base to alleviate the burden on existing taxpayers.

Projections from the World Bank and IMF estimate Pakistan’s GDP growth at 3.6% for FY26. However, flood-related damage in Punjab threatens agricultural output, posing risks to food security and industrial raw material supplies.

Hussain called on the government to transition from stabilization to growth, highlighting the need for energy price rationalization and a focus on resilience against climate change to ensure long-term economic stability.