Pakistan’s Economic Survey celebrates stability, its Budget for FY27 shows how fragile that stability is

Pakistan’s Ministry of Finance released its Economic Survey 2025-26 and Federal Budget for FY2026-27, revealing contrasting economic narratives. The survey reports GDP growth at 3.7%, down from 3.18% in FY2024-25, while inflation dropped to an average of 6.2% over the first 10 months of FY2026, compared to 28-38% in FY2023. The current account recorded a USD 72 million surplus in the first three quarters, and foreign exchange reserves reached multi-year highs. A primary surplus of PKR 4091.5 billion (3.2% of GDP) for July-March FY2026 was celebrated as a historic achievement. However, this stabilization masks deeper vulnerabilities. The primary surplus hinges on two unsustainable factors: a 23.2% reduction in markup payments due to State Bank of Pakistan (SBP) interest rate cuts after the 2022-2024 crisis, and a PKR 2,428 billion profit transfer from the SBP. Without these, the fiscal outlook weakens significantly. The Federal Budget projects SBP profits to fall to PKR 1,435 billion in FY2026-27, a PKR 1 trillion decline, while the fiscal deficit is expected to rise to PKR 7,020 billion, exceeding the revised FY2025-26 estimate. The survey also shows that Pakistan’s 3.7% GDP growth is heavily reliant on the services sector, with agriculture and industry contributing minimally. Despite progress, the economy remains fragile, as the primary surplus is projected to shrink to 2% of GDP in FY2026-27. The budget signals that Pakistan’s fiscal consolidation has peaked, with no structural reforms ensuring long-term stability. Critics argue that stabilization does not equate to development, as the government has prioritized creditor satisfaction over citizen welfare. The reliance on temporary measures like SBP profits and lower interest payments raises concerns about Pakistan’s ability to sustain economic recovery without deeper structural reforms.