KARACHI: Pakistan’s central bank, the State Bank of Pakistan, published its Half Yearly Report on FY26 on Tuesday, projecting GDP growth in Pakistan during FY26 at the lower end of the range projected by the bank previously between 3.75 percent to 4.75 percent. This is a cautiously optimistic outlook being accompanied by some of the most direct warnings about external dangers to Pakistan’s economic stability.
The report does recognize some true development. The growth in Pakistan GDP FY26 takes place amid low inflation, high foreign exchange reserves, and positive financial flows, a phenomenon that has come about due to the monetary and fiscal discipline followed by the SBP and the government under the current IMF program.
Why was There a Trend towards Stability in H1FY26?
According to the report by SBP, a number of overlapping elements have contributed towards the improved performance of the macroeconomics of the country in H1-FY26. These elements include monetary discipline, fiscal policy, assistance from the IMF programme, structural changes, and stable prices of global commodities during the period. All these factors helped maintain GDP growth in FY26 despite internal flood damage and global uncertainties.
The current account balance in Pakistan has remained nearly balanced until H1-FY26, and the SBP is confident that this will continue to remain within the 0-1 percent range of GDP in the entire fiscal year — indicating that the external position of Pakistan remains sustainable despite mounting pressures on all fronts.
Middle East War Develops into Major Threat to Pakistan
There is an external threat to the GDP growth rate of the Pakistan economy during the fiscal year 2026 due to the increasing conflict in the Middle East region. According to the State Bank of Pakistan, there are certain risks, such as the war in the Middle East, which have been identified.
It is worth mentioning that the central bank pointed out that the ongoing struggle will not have a big influence on the GDP growth of Pakistan in the FY26 fiscal year – but there is a catch in it. It is because the influence of the war in the Middle East on inflation will only start showing itself in the FY27 fiscal year.
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Remittances Under Pressure for Q4 Due to GCC Slowdown
The more specific cautionary signal from the SBP half-yearly report is related to remittances, which constitute an important source of foreign exchange earnings and are vital for balancing Pakistan’s current account deficit.
The GCC nations provided nearly 55% of the total remittance income of Pakistan in FY21 to FY25. The Middle East war has brought uncertainty regarding economic activities and job markets in the Gulf region, suggesting that the remittance income of Pakistan could be under pressure during the fourth quarter of FY26.
However, the SBP remains optimistic that the overall flow will continue to be robust until FY26; but the quarter four issue is something that needs to be kept in check.
Inflation Alert Stretches Up to FY27
The GDP growth in Pakistan for FY26 could stick close to the mark, but the SBP has sounded a clear alarm bell on what lies ahead. Higher fuel costs in the international market and increased freight charges mean that the rate of inflation is likely to rise beyond the 5%-7% mark in FY27.
In addition, higher fuel prices will drive up the cost of shipping into Pakistan for the next several months, which would put further strain on Pakistan’s balance of payments situation at a time when it cannot afford to be doing so.
