By Staff Reporter
ISLAMABAD: The government flagged renewed tensions in the Middle East as a threat to its inflation and external-sector outlook, even as officials pointed to a credit-rating upgrade and record technology exports as evidence the economy has turned a corner after last year’s stabilization drive.
The finance ministry, in its Monthly Economic Update & Outlook for July, said geopolitical strains in the region pose downside risks to price stability and the balance of payments, while expressing confidence that export incentives and steady remittance inflows would keep the external accounts resilient. The warning comes as Pakistan enters its new fiscal year forecasting inflation in the high single digits to low double digits.
Consumer price growth is projected to run between 9% and 10% in July, the ministry said, a level officials described as elevated but consistent with the broader disinflation path secured over the past year. The trajectory for energy prices — a key swing factor for the inflation forecast — hinges on whether Washington and Tehran can reach a durable settlement, according to the ministry.
Stabilization Gains Carry Into New Year
The ministry said Pakistan closed the 2026 fiscal year having largely achieved its macroeconomic stabilization targets, setting up what it called a stronger foundation for growth in the current year. Officials pointed to fiscal discipline, structural reforms, firmer industrial output and improved external buffers as the pillars underpinning that shift.
Large-scale manufacturing rebounded over the past year and is expected to extend those gains, supported by steadier energy supplies, easing financial conditions and stronger domestic demand alongside continued export-oriented output, the ministry said. Agriculture, meanwhile, posted moderate growth despite weather disruptions during the year.
On the fiscal side, the ministry credited improved revenue collection and expenditure controls with reinforcing the budget position. The current account ended the year with a shortfall of just $140 million, a gap the ministry said was largely offset by record remittances and a buildup in foreign exchange reserves — even as imports picked up alongside the domestic recovery.
Credit Upgrade, Tech Exports Highlight Progress
Underscoring the improved standing, S&P Global Ratings raised Pakistan’s long-term sovereign credit rating to B from B- earlier this month, citing stronger institutional capacity, sustained reform implementation, better fiscal outcomes and a substantial rebuild of reserves.
Technology exports also hit a milestone, with information-technology shipments climbing to a record $4.6 billion, up 20.6% from a year earlier — a sign, the ministry said, of Pakistan’s expanding footprint in digital services.
Overseas employment continued to provide a release valve for the labor market: the Bureau of Emigration and Overseas Employment registered 38,410 workers for jobs abroad in June alone, the ministry said, part of a broader push on poverty alleviation and social protection that continued through the year.
Growth Target Set at 4%
Building on those gains, the government is targeting real GDP growth of 4% for the new fiscal year, a goal it said would rest on deepening financial markets, widening the domestic investor base, strengthening debt sustainability and expanding Pakistan’s presence in global capital markets.
Global indicators offered a mixed backdrop. The U.S. Weekly Economic Index — a real-time gauge of American economic activity — stood at 2.9% for the week ended July 18, with its 13-week moving average at 2.87%. The ministry also cited the Composite Leading Indicator, which suggested that OECD economies including the U.K. and the U.S. — among Pakistan’s largest export markets — remained broadly in line with their long-term growth potential, a sign of continued external demand even as the ministry cautioned that a flare-up in Middle East tensions could cloud that picture.
Risks Remain, but Buffers Are Stronger
The ministry reiterated that a renewed escalation between the U.S. and Iran would pose risks on multiple fronts — global energy prices, trade flows and financial-market volatility chief among them.
Still, officials argued the country is better positioned to absorb such shocks than in the past, pointing to firmer macroeconomic fundamentals, larger external buffers and what they described as heightened policy vigilance as reasons for confidence heading into the new fiscal year.
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