Economic outlook stable in FY26, inflation expected around 5%: Finance Ministry

The Finance Ministry has said flood-related damages may add fiscal pressures and disrupt food supplies in affected areas. However, inflation is projected to remain within the range of 4–5% in August, according to a report released by the ministry on Thursday.

Pakistan’s economy started FY26 with positive momentum carried over from the sustained improvements in FY25, setting a promising tone for the months ahead. CPI inflation remained moderate, suggesting that inflationary expectations are well anchored through a mix of administrative measures, policy reforms, and prudent economic management, the report noted.

In July FY26, the external sector performed favorably, with a narrower current account deficit and a stable exchange rate, while FBR’s tax collection recorded significant growth. These trends highlight a stable macroeconomic foundation at the beginning of FY26. The stability achieved in FY25 and sustained improvements in macroeconomic indicators prompted international credit rating agencies to upgrade Pakistan’s sovereign outlook, reaffirming confidence in the country’s economic direction and reinforcing the credibility of ongoing reform efforts.

The report further stated that Pakistan entered FY26 with stable macroeconomic conditions and improved growth prospects, supported by a stronger external and fiscal position. On a year-on-year basis, LSM has been on a steady recovery since April, peaking in June, and is expected to gain further momentum with improvements in automotive and fertilizer output.

Government measures for investment facilitation, along with reforms to support private sector–led growth, easing inflation, and an accommodative monetary policy, are likely to further reinforce business confidence.

A favorable global environment, stronger demand from trading partners, and Pakistan’s recent trade deal with the U.S. are expected to boost exports, while workers’ remittances will help contain trade deficit pressures arising from tariff rationalization–driven imports.