By Staff Reporter
ISLAMABAD: Pakistan’s inflation is projected to remain within the range of 5-6% in January 2026, the Finance Division said on Tuesday, as the economy showed signs of sustaining its growth momentum amid easing price pressures and structural reforms.
In its Monthly Economic Update & Outlook for January 2026, the Ministry of Finance said the economy was well positioned to maintain growth in fiscal year 2026, supported by strong performance in large-scale manufacturing (LSM) and other high-frequency indicators. “This positive trajectory reflects the impact of prudent policies, ongoing structural reforms, and easing of monetary conditions due to subsiding inflationary pressures,” the report said.
The outlook follows a decision by the State Bank of Pakistan (SBP) on Monday to hold its benchmark policy rate steady at 10.5%, citing faster-than-expected momentum in economic activity, primarily from domestic-oriented sectors. SBP Governor Jameel Ahmad, speaking after the first Monetary Policy Committee meeting of 2026, presented an upbeat assessment, revising the bank’s GDP growth forecast for fiscal 2026 to a range of 3.75-4.75%. He also said the central bank’s foreign exchange reserves were expected to hit a record $20.2 billion by the end of December 2026. The SBP had earlier projected inflation above 7% in some months during the second half of the current fiscal year.
Figures from the Pakistan Bureau of Statistics showed consumer price index (CPI) inflation fell 0.4% month-on-month in December 2025 and dipped 0.1% year-on-year. CPI inflation stood at 5.6% year-on-year in December 2025, down from 6.1% the previous month and up from 4.1% in December 2024. Average inflation for July-December in fiscal 2026 was 5.2%, compared with 7.2% in the same period a year earlier.
The Ministry of Finance report highlighted robust remittances and a strong showing by the Pakistan Stock Exchange (PSX), which ranked among the world’s top-performing markets. On the external side, the current account was projected to stay in deficit, but “robust remittance inflows and steady performance in IT and services exports are likely to cushion external pressures,” the report said. It added that improved fiscal management would continue to bolster macroeconomic stability.
In agriculture, the sector grew 2.9% in the first quarter of fiscal 2026, up from 1% in the same period last year. Major crops, excluding wheat as a rabi crop, contracted 0.7%, an improvement from a 13.1% contraction a year earlier, though cotton production weighed on the figure. LSM expanded 6% in July-November of fiscal 2026, with the quantum index of manufacturing reaching its highest level since fiscal 2016. Sixteen sectors posted positive growth during the period. In November 2025, LSM rose 10.4% year-on-year and 0.2% month-on-month.
The government recorded a fiscal surplus in July-November of fiscal 2026, with gross federal revenue receipts up 7.8%. This was driven by a 10.2% increase in collections by the Federal Board of Revenue and a 4.8% rise in non-tax revenue. Total expenditure fell 6.2%, reflecting a 6.4% drop in current spending, including a 21.3% decline in mark-up payments. Development expenditure edged up 1.5%.The current account posted a $1.2 billion deficit in July-December of fiscal 2026, against a $0.96 billion surplus in the same period last year.
Goods and services exports totaled $20.3 billion, little changed from $20.4 billion a year earlier, with goods exports at $15.5 billion. Services exports were boosted by a 19.8% increase in IT services to $2.2 billion. Goods and services imports climbed to $37.8 billion from $33.5 billion, including goods imports of $31.3 billion. The trade deficit in goods and services widened to $17.6 billion from $13.1 billion.
Remittances rose 10.6% to $19.7 billion, with inflows from Saudi Arabia accounting for 23.9% and from the United Arab Emirates 20.7%. Net foreign direct investment inflows fell to $808.1 million. Money supply grew 3.7% in July-December of fiscal 2026, reversing a 0.7% contraction a year earlier. Net foreign assets of the banking system increased by 107.9 billion rupees, down from a 667.3 billion rupee rise last year. Net domestic assets expanded by 1.4 trillion rupees, compared with a 934.7 billion rupee decline previously. For budgetary support borrowing, the government retired 347 billion rupees, against a retirement of 2.21 trillion rupees a year earlier.
Separately, Khurram Schehzad, adviser to the finance minister, said on Tuesday that S&P Global Market Intelligence’s latest macroeconomic forecasts for Pakistan broadly aligned with the SBP’s projections. In a statement, Schehzad noted S&P projected inflation at 5.1% in 2026, rising to 5.6% in 2027, indicating a “slight increase.” The SBP forecast a 5-7% range over the next two years.
“S&P’s point forecasts, i.e. 5.1–5.6%, sit within SBP’s 5–7% band, and imply stable-to-slightly higher inflation from 2026 to 2027,” Schehzad said. S&P anticipated a current account deficit of 0.5% of GDP in 2026, widening to 1.3% in 2027. The SBP expected the fiscal 2026 deficit between 0% and 1% of GDP. “For FY26, S&P’s 0.5% deficit aligns with SBP’s 0–1% range. S&P’s other-year projection, i.e. 1.3% is slightly above SBP’s FY26 band,” Schehzad commented.
S&P forecast real GDP growth of 3.5% in fiscal 2026, strengthening to 4.4% in 2027. The SBP projected 3.75-4.75% for fiscal 2026.”S&P expects growth to pick up in FY27 to 4.4%, which is within SBP’s FY26 range,” Schehzad said. “Overall, S&P’s projections broadly align with SBP’s outlook, with slight differences on growth and the current account but a shared assessment of easing inflation and gradual economic improvement.”
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