Pakistan’s economic activity is expected to pick up in fiscal year 2027 despite elevated energy costs and supply disruptions, with real GDP growth projected between 3.5 percent and 4.5 percent, the State Bank of Pakistan said in its latest Monetary Policy Report.
The central bank said several factors are expected to support growth, including tax measures, lower tariffs under the National Tariff Policy 2025 to 2030, stronger sugarcane production and a broad based increase in private sector credit during FY26.
The report said tariff reductions could particularly support import dependent manufacturing sectors such as automobiles, textiles, pharmaceuticals and edible oil. Higher sugarcane production is also expected to increase sugar output and strengthen wholesale and retail trade services.
Business sentiment has also improved, with surveys showing higher business confidence and a stronger purchasing managers index in June and July 2026. High frequency economic indicators that had weakened following the conflict also recovered in June, a trend the SBP expects to continue into FY27.
The current account deficit is expected to widen as economic activity and global commodity prices increase, but the SBP expects it to remain between zero and 1 percent of GDP. Resilient workers’ remittances and higher exports of goods and services are expected to help contain external pressures.
The central bank expects official inflows to help raise its foreign exchange reserves to the targeted $20.2 billion by the end of December 2026, with reserves projected to increase further by June 2027. Inflation is expected to remain elevated in the near term because of higher energy prices and their direct and indirect effects on the economy. However, the SBP expects inflation to gradually ease toward the upper end of its 5 percent to 7 percent target range by the end of FY27.
The report identified several risks to the outlook, including geopolitical developments in the Middle East, higher global energy and commodity prices, climate related risks from El Niño conditions and floods, and delays in structural reforms. The SBP warned that delays could weaken exports, slow productivity growth and limit the economy’s ability to sustain stronger growth without creating inflationary and external account pressures.
The SBP said its monetary policy response, combined with stronger initial macroeconomic conditions, has helped limit the impact of the recent supply shock on inflation and the external account. The government’s timely pass through of higher global energy prices, targeted temporary subsidies and austerity measures have also helped maintain fiscal discipline and contain aggregate demand.
Despite the recent shock, the SBP said Pakistan’s macroeconomic stability remains intact, supported by stronger fiscal and external buffers built over the past three years. However, the central bank noted that its foreign exchange reserves had fallen to $17 billion as of July 31 due to sizable debt repayments..
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