LAHORE:

Pakistan’s economy has shown cautious signs of stabilisation during the October-December quarter of fiscal year 2025-26, although persistent fiscal and external pressures continue to weigh on the overall growth outlook.

According to the latest “Economic Infographics: A Snapshot of Pakistan’s Economy”, released by the Research and Publications Department of the Institute of Cost and Management Accountants of Pakistan, key macroeconomic indicators reflected a mixed but gradually improving trend during the secoand quarter of FY26.

On the fiscal front, revenue collection remained under strain. The Federal Board of Revenue collected Rs3,274 billion during the quarter against the target of Rs3,467 billion, resulting in a shortfall of Rs193 billion. Notably, revenue deficits were recorded in all three months of the quarter, underlining the structural challenges in broadening the tax base and meeting ambitious fiscal targets. External sector indicators also highlighted continuing vulnerabilities. Goods exports during the quarter stood at $7.66 billion, while imports reached $15.84 billion, leading to a wide trade deficit of $8.98 billion. As a result, the current account posted a deficit of $458 million for the October-December period.

Although November recorded a brief C/A surplus of $98 million, it was not sufficient to offset deficits of $291 million in October and $265 million in December. The data reflects ongoing pressure on the balance of payments despite efforts to manage import flows and stabilise the currency market. However, remittances once again emerged as a strong support pillar for the economy. Workers’ remittances totalled $10.2 billion during the quarter, providing much-needed foreign exchange inflows. Saudi Arabia remained the largest contributor with $2.4 billion, followed by the UAE with $2.1 billion and the United Kingdom with $1.54 billion. These inflows played a critical role in supporting external accounts and stabilising reserves.

Foreign exchange reserves showed improvement during the second quarter. Net reserves held by the State Bank increased from $14.5 billion in October to $16.1 billion in December, while commercial banks’ reserves edged up from $4.67 billion to $4.69 billion.

The Pakistani rupee remained largely stable, moving slightly from Rs282.8 per dollar at the end of October to Rs283 by the end of December, indicating relative calm in the currency market. Inflation offered visible relief to households. The Consumer Price Index on a month-on-month basis declined from 1.7% in October to negative 0.4% in December. Similarly, the Sensitive Price Indicator improved from 0.9% to negative 0.8% during the same period. The easing of price pressures provided some breathing space to consumers, who have endured prolonged inflationary stress in recent years.

The banking sector reflected strengthening credit activity. Credit to the private sector expanded from Rs9,945.8 billion in October to Rs10,930.9 billion in December, signalling improved commercial activity and business confidence. Meanwhile, net credit to the government declined from Rs2,796.8 billion to Rs2,310.6 billion, easing crowding-out pressure and allowing greater room for private sector borrowing.

Financial markets responded positively to improving indicators. The KSE-100 index rose sharply from 161,631 points in October to 174,054 points in December, while market capitalisation increased from Rs18,561 billion to Rs19,689 billion during the quarter.

Rising gold prices, which moved from Rs363,529 to Rs394,376 per 10 grams, reflected global trends and investor preference for safe-haven assets. Petroleum prices remained largely stable during the quarter, hovering around Rs263 per litre before easing to Rs258.17 by mid-February 2026.

Corporate activity remained encouraging. A total of 10,421 new companies were registered during the quarter, bringing the overall number of registered companies to 279,724 by December 2025.

In the industrial sector, cement dispatches reached 13.24 million tons, including 2.04 million tons of exports, indicating steady construction-related activity. The automotive sector produced 38,805 passenger cars during Q2, although monthly production declined from 15,112 units in October to 10,735 units in December, reflecting moderation in demand. Funds in Roshan Digital Accounts continued to rise, increasing from $11.31 billion in October to $11.71 billion in December, demonstrating sustained confidence from overseas Pakistanis.

On the debt front, the picture remained mixed. Domestic debt increased from Rs53.96 trillion in October to Rs55.36 trillion in December, while external debt edged up from Rs23 trillion to Rs23.17 trillion. During the quarter, foreign grants and loans provided additional support, with Saudi Arabia contributing $302.31 million through the Saudi Fund for Development oil facility, followed by China with $198.35 million in bilateral assistance.

Looking ahead, growth projections remain moderate. The IMF, World Bank, United Nations, Asian Development Bank, ICMA International and Moody’s have projected GDP growth in the range of around 3% to 3.5% for FY26, while the State Bank of Pakistan expects a slightly higher growth band of 3.75% to 4.75%.

Overall, the quarter presents a picture of gradual stabilisation supported by remittances, improved reserves, easing inflation and strengthening markets. Yet fiscal gaps, trade imbalances and rising debt underscore the need for sustained tax reforms, export growth and disciplined macroeconomic management to ensure inclusive economic recovery.