ISLAMABAD: Pakistan’s economy grew at an estimated 3.7% in fiscal year 2026, up from 3.2% a year earlier, driven by expansion in the services and agriculture sectors despite flooding and a sharp slowdown in industrial activity, according to the Pakistan Economic Survey 2025-26 released Thursday.
The services sector posted its strongest performance in four years, growing 4.1%, while agriculture rose 2.9% — up from 1.5% in FY25 — despite flood-related disruptions during the year. The industrial sector slowed to 3.5% from 5.6% in FY25.
Officials credited moderate inflation averaging 6.7%, a stable exchange rate at 280 rupees per U.S. dollar, and a 400-basis-point reduction in the policy rate for supporting economic activity.
The agriculture sector’s growth was driven by a 3.8% expansion in livestock, which holds more than 62% weight in the sector. Key crops also improved, with wheat production up 4%, rice up 3% and sugarcane up 6%.
Within the services sector, wholesale and retail trade — accounting for about 30% of the sector — expanded 3.7%. Education and health grew 5.2% and 6.8% respectively.
Industrial growth decelerated sharply due to a 10.6% contraction in electricity, gas and water supply, compared with 29.6% growth in FY25, and a slowdown in construction to 5.7% from 8.8%. However, manufacturing — which accounts for 67% of the industrial sector — grew 6.6%, led by large-scale manufacturing, which posted its highest growth in four years at 6.1% after contracting 0.7% last year. Automobiles and food drove the recovery.
The fiscal deficit stood at 0.7% of GDP during the first nine months of FY26, but the government expects it to widen to 3.3% by year-end, or about 4.2 trillion rupees, due to higher markup payments and project releases.
Revenue collection remains below target. The Federal Board of Revenue collected 11.2 trillion rupees during the first 11 months of FY26, against a revised annual target of 13.9 trillion rupees. The government now expects full-year FBR collection of 12.8 trillion rupees, up 9% from 11.8 trillion rupees in FY25. Officials attributed the shortfall to regional geopolitical conflict affecting trade and economic activity.
Per capita income rose 8.6% to $1,901 from $1,751 a year earlier, supported by exchange rate stability and revived economic activity.
The trade deficit is expected to reach $34 billion in FY26, slightly above the five-year average of $32 billion, but the current account deficit is projected at only $300 million — significantly below the five-year average deficit of $4.2 billion.
For FY27, the government forecasts real GDP growth of 4%, but officials estimate growth will come in at around 3.7%, still above the five-year average. The survey said stable policy and exchange rates could support further improvement.