Pakistan records 3.7% growth, economy reaches $452 billion milestone

ISLAMABAD: Pakistan's economy expanded by 3.7 percent in fiscal year 2025-26, reaching a record size of $452.1 billion, as reforms, fiscal consolidation and improving investor confidence helped sustain the country's recovery despite floods, regional tensions and global economic uncertainty.

Presenting the Pakistan Economic Survey 2025-26 in Islamabad on Thursday, Finance Minister Muhammad Aurangzeb said the economy had remained on a path "from stabilization to growth" despite multiple external shocks.

"The economy remained on the path from stabilization to growth despite multiple shocks, including tariff-related uncertainty, floods and regional conflict," Aurangzeb told reporters while unveiling the survey ahead of the federal budget.

The survey showed Pakistan's gross domestic product (GDP) grew 3.7 percent during FY2025-26, up from 3.2 percent a year earlier, while the size of the economy increased to Rs126.9 trillion, equivalent to approximately $452.1 billion. 

Per capita income rose to $1,901 from $1,751 a year ago. 

The findings come as Pakistan seeks to build on macroeconomic stabilization achieved over the past two years through fiscal reforms, revenue mobilization, energy-sector restructuring, digitization, investment facilitation and measures aimed at strengthening private-sector-led growth. 

The government has also intensified efforts to attract foreign investment, expand economic diplomacy and deepen commercial engagement with key partners including China, Gulf countries, Europe and the United States.

Broad-based recovery

Aurangzeb said the latest figures reflected a steady recovery after years of economic strain.

"Sometimes we forget where this journey began. To refresh our memory, growth was minus 0.2 percent in 2023, increased to 2.5 percent in 2024, rose further to 3.2 percent in 2025, and reached 3.7 percent in 2026," he said.

He noted that government institutions had expected growth to exceed four percent earlier this year, but regional developments affected economic activity.

"Frankly, if I had been sitting with you in January or February, there was a broad consensus among the Planning Commission, the State Bank, and the Ministry of Finance that economic growth this year would exceed 4 percent,” he said. "However, as you all know, the conflict that emerged affected us and had an impact on our economic performance.”

The finance minister argued that the latest economic performance reflected a broad-based recovery rather than growth concentrated in a handful of sectors.

"It is not just consumption that has increased; rather, this is a story of broad-based recovery," he said.

According to the survey, all major sectors contributed positively to growth. Agriculture expanded by 2.89 percent, industry by 3.51 percent and services by 4.09 percent. 

Agriculture rebounded despite the impact of monsoon floods, supported by stronger livestock performance and improved crop output. 

Aurangzeb noted that livestock now accounts for roughly 60 percent of agricultural GDP and remains a key pillar of rural economic activity.

Manufacturing also showed renewed momentum. 

The manufacturing sector grew 6.6 percent, while Large-Scale Manufacturing (LSM) expanded 6.1 percent, its strongest performance in four years. 

Sixteen out of 22 manufacturing sectors recorded positive growth, including food, textiles, wearing apparel, petroleum products, automobiles and electrical equipment. 

Aurangzeb said the recovery was visible on both the supply and demand sides of the economy, citing higher demand for cement, fertilizer, petroleum products, automobiles and mobile phones as evidence of increased economic activity.

The services sector, which accounts for nearly 58 percent of GDP, remained a key growth driver, supported in part by rapid expansion in information and communication services and Pakistan's growing digital economy.

Fiscal and external gains

The survey also highlighted significant improvements in public finances. 

During July-March FY2026, the fiscal deficit narrowed to 0.7 percent of GDP from 2.6 percent a year earlier, while the primary surplus increased to 3.2 percent of GDP. 

Total revenues rose 10.7 percent to Rs14.8 trillion, supported by higher tax and non-tax collections. 

Aurangzeb said expenditure discipline and lower debt-servicing costs had helped create additional fiscal space, while reforms in tax administration and digital monitoring systems were beginning to generate measurable results.

He noted that inflation had fallen sharply from the highs seen in recent years, helping support economic stability and allowing room for lower interest rates.

The external sector also strengthened during the year. The current account posted a surplus during July-March, workers' remittances rose to record levels and foreign exchange reserves increased substantially. 

According to the survey, foreign exchange reserves reached $22.6 billion by mid-May, while remittances climbed 8.2 percent to $30.3 billion during July-March. 

Aurangzeb said remittances remained a critical pillar of Pakistan's external account.

"People often talk about remittances versus exports. This is not an 'either-or' discussion; this is an 'and-and' discussion," he said, adding that both exports and overseas inflows would remain important for long-term economic stability.

The minister said Pakistan's overseas community continued to play a vital role in strengthening the economy, while investment-oriented inflows through initiatives such as Roshan Digital Accounts were also gaining momentum.

Investment and digital economy

Aurangzeb highlighted growth in value-added exports, including garments, home textiles and sports goods, while noting that information technology exports had crossed $3.8 billion and were on track to reach $4.5 billion.

He also described freelancers as a "major success story," saying their earnings were approaching the $1 billion mark and demonstrating the potential of Pakistan's young workforce in the digital economy.

Investor confidence showed signs of improvement as well. The benchmark KSE-100 index gained more than 18 percent during the fiscal year, while more than 39,000 new companies were registered, almost all through digital channels. 

The investor base surpassed 563,000, with approximately 175,000 new investors entering the equity market during the year.

Aurangzeb said stronger participation by domestic investors often serves as a signal for foreign investors.

"Domestic investors come first, and then foreign investors follow," he said.

He pointed to continued investment and expansion by international companies operating in Pakistan, including firms in technology, energy, logistics, finance and consumer sectors, as evidence of growing confidence in the country's economic prospects.

The government also returned to international capital markets during the year and launched a Panda Bond initiative, which Aurangzeb described as an important step in diversifying financing sources and accessing China's capital markets at competitive rates.

Challenges remain

Economist Dr Ikram ul Haq said the latest growth figures reflected a meaningful recovery but cautioned against overestimating their significance.

"The headline number — 3.7 percent GDP growth in FY2025-26 — deserves recognition, but not celebration," he told Pakistan TV Digital.

"It is a respectable recovery figure in the context of floods, Middle East tensions, volatile oil prices, tight IMF conditionality and a fragile domestic economy. Yet it remains far below what Pakistan requires to absorb its labour force, reduce poverty and escape debt dependence."

The survey said Pakistan maintained economic stability despite volatile energy prices, supply-chain disruptions, floods and regional uncertainty, while advancing reforms aimed at strengthening resilience, improving investor confidence and supporting sustainable economic growth.