By Staff Reporter
ISLAMABAD: The Finance Ministry on Friday warned of persistent downside risks from geopolitical uncertainties and global commodity price volatility, even as it signalled markedly improved growth prospects for the fiscal year.
Downside risks persist, particularly from geopolitical uncertainties and global commodity price volatility, the ministry said in its monthly Economic Outlook for February. Prudent macroeconomic management would help safeguard stability, it added.
The report projected inflation at 6% to 7% in February, up from 5.8% in January. Consumer prices had averaged 5.2% in the July-to-January period, down from 6.5% a year earlier. January’s reading came in at 5.8%, compared with 5.6% in December and 2.4% in January 2025.
Economic activity is expected to sustain its upward path through fiscal 2026, supported by macroeconomic stability, easing inflationary pressures and a firmer fiscal position. Accommodative monetary policy, continued fiscal consolidation and structural reforms are likely to reinforce business confidence and private-sector activity. “The accommodative monetary policy, alongside continued fiscal consolidation and structural reforms, is likely to reinforce business confidence and private sector activity,” the report said.
Growth will be driven by a rebound in large-scale manufacturing, stronger remittances and resilient agricultural performance. The external sector is seen remaining manageable, with a stable exchange rate and contained current-account pressures.
The economy entered the third quarter of fiscal 2026 with improved fundamentals. Exchange-rate stability, sustained growth in workers’ remittances and rising information-technology exports have helped keep the current-account position in check, bolstering the external account.
High-frequency indicators point to a considerable pickup in output. Monetary easing has reduced borrowing costs, supporting financing conditions across the economy. Fiscal consolidation has strengthened, with the overall balance posting a surplus of 0.4% of gross domestic product, or 541.9 billion rupees, in July-to-December — a reversal from a 1.3% of GDP deficit a year earlier. The primary surplus stood at 3.2% of GDP, or 4,105.5 billion rupees. A sizeable portion of public debt was retired ahead of schedule, in a step toward prudent debt management.
The government also introduced a 38 billion-rupee Ramazan Relief Package to enhance the social safety net. “Overall, the growth prospects have improved significantly, with momentum likely to strengthen in the remaining fiscal year, leading towards sustainable economic growth,” the ministry said.
On the revenue side, Federal Board of Revenue collections rose 10.5% to 7,176.9 billion rupees in the July-to-January period. Direct taxes increased 11.1%, while indirect taxes gained 9.8%, led by a 15.2% rise in federal excise duty, 10.3% in sales tax and 5.4% in customs duties.
Large-scale manufacturing expanded 4.8% in July-to-December, accelerating from 1.8% a year earlier. The rebound was driven mainly by automobiles, wearing apparel, and coke and petroleum products, which contributed 1.6, 1.3 and 1.0 percentage points, respectively. Fourteen of the tracked sectors recorded positive growth, including textiles, non-metallic mineral products, food and beverages, electrical equipment and tobacco.
The Bureau of Emigration and Overseas Employment registered 75,663 workers leaving for jobs abroad in January, a 19% increase from 63,559 a year earlier — a development expected to further support remittances.
In agriculture, better input availability is underpinning the wheat outlook despite a shortfall in sowing. For the 2025-26 Rabi season, wheat was planted on 23.1 million acres against a target of 23.8 million, with production targeted at 29.7 million tonnes.
Imports of agricultural machinery and implements climbed 10.5% to $76.8 million in July-to-January. Urea offtake during October-to-January reached 2,744 thousand tonnes, 12% higher than the same period a year ago, while DAP offtake stood at 583 thousand tonnes. Government initiatives to lift productivity — including quality seeds, agricultural credit, farm mechanization and adequate fertilizer supply — are progressing steadily, the report noted.
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