Global commodity price fluctuations, geopolitical developments pose economic risks, Govt tells NA

In a report presented before the National Assembly, the Finance Ministry has said that risks remain from global commodity price fluctuations and geopolitical developments, particularly in the Middle East, which may create import pressures. 

The report stated that the government has adopted a proactive strategy to maintain macroeconomic stability, including activating a high-level monitoring mechanism to track global commodity markets, particularly oil prices. It added that austerity measures have been strengthened at both federal and provincial levels to limit non-essential spending and protect fiscal space.

Authorities are also maintaining petroleum stocks, managing demand, and improving coordination among ministries to contain potential impacts on inflation and the external account. The report said the outlook remains stable, with continued focus on sustaining growth and macroeconomic stability.

Growth and sectoral performance

The report said GDP grew 3.09% in FY2025, improving from 2.60% in FY2024. Growth momentum continued into FY2026, with first-quarter GDP estimated at 3.71%, compared to 1.56% in the same period last year.

Agriculture expanded by 2.9% in Q1 FY2026, up from 1.0% last year, while industry recorded strong growth of 9.38% compared to 0.12% in the same period. Services grew 2.35%, slightly higher than 2.24% in Q1 FY2025.

Large-scale manufacturing (LSM) posted growth of 5.8% during July–January FY2026, compared to a contraction of 1.7% in the same period last year.

Inflation trends

Inflation declined significantly, with average CPI falling from 23.4% in FY2024 to 4.5% in FY2025. During the first eight months of FY2026, inflation averaged 5.5%, slightly lower than 5.8% in the same period last year.

The report attributed the decline to improved supply conditions and economic management, resulting in reduced cost-of-living pressures.

Fiscal performance

Fiscal indicators showed improvement, with the overall fiscal deficit reduced to 5.4% of GDP in FY2025 from 6.8% in FY2024.

During July–January FY2026, the fiscal deficit was contained at Rs64.7 billion (0.05% of GDP), compared to Rs2,070.9 billion (1.8% of GDP) in the same period last year.

The primary surplus increased to Rs4,151.6 billion, equivalent to 3.2% of GDP, building on a consolidated surplus of 2.4% of GDP recorded in FY2025.

Debt and interest payments

Public debt stood at Rs80.52 trillion, equivalent to 70.7% of GDP, exceeding projections due to lower nominal GDP, which was recorded at Rs113.9 trillion against a projected Rs124.1 trillion.

Interest payments for FY2025 amounted to Rs8.89 trillion (7.8% of GDP), lower than the budgeted Rs9.78 trillion. This reduction was attributed to a cumulative 9.5 percentage point decline in the State Bank of Pakistan’s policy rate, improved fiscal balances and the buyback of high-cost debt.

The growth rate of public debt remained stable at around 13% over the past two fiscal years.

Risks and policy response

The Finance Ministry highlighted risks from global commodity price volatility and geopolitical developments, particularly in the Middle East, which may create pressure on imports, inflation and the external account.

To manage these risks, the government has activated a high-level monitoring mechanism to track global markets, particularly oil prices. It is also maintaining petroleum stocks, implementing demand management measures and strengthening coordination across ministries.

Austerity measures have been reinforced at the federal and provincial levels to contain non-essential spending and preserve fiscal space.

Outlook

The report said key indicators point to improving economic conditions, including moderate growth, lower inflation, better fiscal balances and relative stability in the external sector. Fiscal consolidation and primary surpluses are supporting debt sustainability, while recovery in industrial activity alongside steady performance in agriculture and services reflects broader economic improvement.

However, it cautioned that continued volatility in global energy markets and geopolitical developments remain key risks to the outlook.