The Pakistan Economic Survey on Thursday showed the government missed three major macroeconomic targets but maintained external sector stability and broad-based recovery in the outgoing fiscal year despite the adverse impacts of the Middle East war. According to the Economic Survey of Pakistan 2025-26, the government could not achieve the economic growth targets of 4.2% and the investment-to-GDP ratio and savings-to-GDP ratio also lagged behind the set targets. These indicators are considered the basis for greater sustainable economic growth without falling into the debt trap. The fiscal target of the Federal Board of Revenue is also being missed by a wide margin of over Rs 1 trillion. But the government was on track to achieve the primary budget surplus target, key to the continuation of the International Monetary Fund Programme, and the inflation target can also be achieved despite supply shocks. The twin deficits – the budget and the current account – have been real problems for Pakistan for a longer period and have been brought under control, Finance Minister Muhammad Aurangzeb said while sharing the main results of the survey. The fiscal deficit stood at 0.7% of GDP during the first nine months of this fiscal year, while the primary balance remained in surplus. The current account recorded a surplus of 72 million dollars. The Minister of Finance maintained that in the future remittances will continue to be a very important component of the stability of the external sector. Aurangzeb narrated the difficult journey of fiscal year 2025-26, which began under the clouds of tariff uncertainty and the impact of floods of three rivers that affected crops in Punjab province.
"When we started this fiscal year in July, the first thing we faced was trade uncertainty, which was due to tariff discussions on how to deal with tariffs around the world and we got to a point at the end of July where we were able to achieve a competitive position with respect to our exports, especially to the US." Aurangzeb added. Immediately after that, he mentioned, Pakistan faced floods, leading to rescue and relief efforts for rehabilitation of people and reconstruction of infrastructure. The story did not end here, like in March; A regional conflict broke out, Aurangzeb said. Aurangzeb pointed out that of these three exogenous factors, only tariff uncertainty prevailed at the time of presentation of the previous economic study. "The other factors were not there in the picture."
The minister said the government still achieved economic growth of 3.7%, indicating a broad-based recovery. The government had hoped to achieve a growth rate above 4%, but war broke out and the annual target was not met. It also failed to meet investment and savings targets, which remain low and have to be significantly higher to ensure a higher growth rate. To a question, the Finance Minister said that investment and tax/GDP ratios were around the same levels and had to increase. The government will also not meet its export targets for this fiscal year as exports remained negative by almost 6%. Nine million Pakistanis send remittances worth $40 billion, but 250 million people export just $40 billion (of goods and services), Ahsan Iqbal said during his speech.
"Declining exports are our biggest failure, forcing the government to take loans as a stopgap measure."said the Planning Minister. We have to think about how Vietnam, with a population of 100 million dollars, received 38 billion dollars of foreign direct investment and Pakistan could hardly get 1.5 billion dollars, Iqbal said. To a question, the Finance Minister said that reforms have been introduced in the RFB, but it will take at least one or two years to change the culture. The Finance Minister said that the culture of nepotism was being done away with in the FBR, but there were still problems related to theft and collusion. The Finance Minister further said that local investment should lead foreign investment and that policy continuity was very important for investment. He assured that the government will implement the national tariff policy without any changes, saying that exports cannot grow in one year and will take time. Unemployment According to the economic study, the number of unemployed increased from 4.5 million to 5.9 million, and the unemployment rate increased from 6.3% to 7.1%, highlighting the need to further accelerate job creation in line with labor force growth. The unemployment rate of 7.1% was the highest in the last 21 years. The survey showed that poverty in Pakistan rose to an 11-year high of 29%, while income inequality reached its highest level in 27 years, as people’s real incomes and consumption plummeted over the past seven years. Poverty rose significantly from 21.9% recorded in 2018-19, while income inequality also widened, raising concerns about the inclusiveness of the country’s economic rebound. The survey showed that the national Gini coefficient, a key measure of income inequality, rose from 28.4 to 32.7 during the same period. But the Finance Minister said the government has ensured a broad-based economic recovery.
"We have achieved a broad recovery despite the conflict that has affected the region and the entire world," he elaborated. FBR Performance When asked about provincial grants to meet federal expenditure, the Finance Minister said the agreement with the provinces would be for a certain period and would last for more than a year. All three provinces, except Balochistan, agreed to freeze their development expenditure to donate at least Rs 900 billion to the Center for expenditure on water and defense sector projects. But the agreement depends on the performance of the FBR. The Minister said that the meeting with Chief Minister Khyber Pakhtunkhwa on provincial grants was also productive and the four Chief Ministers assured to expand cooperation. However, KP financial advisor Muzzammil Aslam said the KP’s contribution was subject to arranging a meeting with party leader Imran Khan. Economic Growth The Finance Minister said there was growth in all three sectors. "The livestock sector continues to grow more and more. Although we focus mainly on crops, the livestock sector is very important since dairy and livestock represent 60% of agricultural GDP."he added. As a part of industry and manufacturing, large scale manufacturing (LSM) grew 6.1% in FY26, the highest in the last four years. The manufacturing sector saw broad-based growth as out of 22 sectors, 16 showed a positive trajectory, he added. On the external side, he said structural deficit had been the real problem for Pakistan for a long time. "On the fiscal side, we have shown a surplus and reduced the deficit."
"Remittances are and will continue to be a very important component of our external balance position as we move forward."Aurangzeb said. Aurangzeb said exports were declining due to two main factors, of which one sector leading the decline was food, where rice exports fell by $1.1 billion and sugar exports fell by $400 million. Overall, there was a $1.5 billion reduction in food sector exports. In terms of export growth in July-May FY26, the textile sector took the lead, where shipments of woven garments increased by 5%, home textiles increased by 3% and knitwear increased by 3%.
