Pakistan's economy is showing signs of resilience and stabilisation, with stronger external accounts, improved fiscal discipline and a revival in industrial activity, even as geopolitical tensions and global uncertainties continue to pose risks.
According to the latest Monthly Economic Update and Outlook, one of the most notable developments is the strengthening of the external sector. The current account recorded a surplus of $427m in February 2026-the highest in the fiscal year-while the cumulative deficit for July-February remained contained at $700m.
Remittances have played a decisive role in this improvement. Inflows rose by 10.5% to $26.5bn, providing a steady cushion for the balance of payments. This has helped offset external pressures and contributed to a rise in foreign exchange reserves, which reached $21.7bn by mid-March, marking a four-year high.
The report also points to growing confidence in the digital and investment landscape. IT exports continued their upward trajectory, adding to foreign exchange earnings, while net foreign direct investment stood at $1.2bn, with inflows concentrated in power and financial sectors.
On the domestic front, industrial output has rebounded. Large-scale manufacturing expanded by 5.8% during July-January, reversing the contraction seen a year earlier. Key sectors-including automobiles, textiles and food-drove this recovery.
The automobile segment, in particular, recorded sharp gains. Production of trucks and buses surged by over 78%, while car output rose by more than 50%, signalling a revival in consumer demand and industrial momentum.
Agriculture, another critical pillar, also showed improvement. Credit disbursement increased by 11.1% to Rs1,649bn, while imports of machinery rose by 17.1%, indicating progress toward modernisation. Fertiliser usage also expanded, supporting crop output during the Rabi season.
Fiscal consolidation stands out as a central achievement. The fiscal deficit narrowed sharply to Rs64.7bn during July-January, compared with over Rs2 trillion in the same period last year. This adjustment was driven by higher revenues and reduced expenditure, particularly on current spending.
Government revenues rose by 9.3% to over Rs11.2 trillion, while tax collection posted double-digit growth. At the same time, overall expenditures declined by more than 10%, even as development spending increased, reflecting a shift toward growth-oriented priorities.
The primary balance improved to 3.2% of GDP, reinforcing efforts toward fiscal sustainability. Meanwhile, inflation remained relatively contained, averaging 5.5% over the fiscal year to date, despite a slight increase to 7% in February.
Monetary conditions have also supported economic activity. Private-sector credit expanded, and the policy rate was held steady at 10.5%, balancing the need for price stability with growth considerations.
Authorities have also focused on maintaining energy supply amid global volatility. Adequate petroleum reserves and ongoing sector reforms have helped ensure stability in domestic markets despite fluctuations in international oil prices.
Social protection measures have been scaled up as well. Disbursements under the Benazir Income Support Programme rose by nearly 37%, while interest-free loan schemes continued to support low-income households and small enterprises.
Taken together, these indicators suggest a degree of economic stabilisation. Yet the outlook remains contingent on external conditions, particularly geopolitical developments and global energy prices.
For now, the economy appears to have regained some footing. Whether this progress can be sustained will depend on the continuation of reforms and the management of risks beyond the country's control.