Finance Division projects inflation at 8–9% amid external sector pressure

Pakistan’s external sector came under pressure during the current fiscal year, with foreign direct investment (FDI) declining 27 per cent, exports contracting 5.8 per cent and imports rising 7.9 per cent in the first nine months, according to the Finance Division’s Monthly Economic Update and Outlook for April 2026.

The report projected headline inflation to remain in the range of 8–9 per cent in April, citing supply chain constraints and rising global energy prices linked to the Middle East conflict.

FDI stood at $1.354 billion during July–March FY2026, compared to $1.856 billion in the same period last year. However, inflows showed some recovery in March 2026, rising to $167.6 million from $63.7 million a year earlier.

China and Hong Kong remained the largest sources of FDI, contributing $678.6 million and $253.7 million, respectively. Sector-wise, power attracted $714.2 million, followed by financial business at $588.7 million.

Total foreign investment dropped to $410 million during July–March FY2026, down from $1.514 billion in the same period last year. Portfolio investment remained negative, with net outflows of $943.8 million compared to $342.1 million last year.

Despite these trends, domestic financial markets showed resilience, with the stock market index rising 44.3 per cent, market capitalisation increasing 36.9 per cent and company incorporations growing 22.7 per cent.

Workers’ remittances increased 8.2 per cent to $30.3 billion during the period, compared to $28.0 billion last year, led by inflows from Saudi Arabia and the UAE. Monthly remittances for March stood at $3.8 billion, down 5.5 per cent year-on-year.

As of April 17, 2026, foreign exchange reserves stood at $20.6 billion, including $15.1 billion held by the State Bank of Pakistan.

The report noted that despite global uncertainties, macroeconomic indicators have remained stable and economic activity is expected to sustain its momentum. The external position is likely to remain supported by remittance inflows and IT exports, although risks persist from rising commodity prices and supply disruptions.

Inflation, measured by the Consumer Price Index, stood at 7.3 per cent year-on-year in March 2026, compared to 7 per cent in February and 0.7 per cent in March 2025. Average inflation during July–March FY2026 was recorded at 5.7 per cent, compared to 5.3 per cent in the same period last year.

Large Scale Manufacturing grew 5.9 per cent during July–February FY2026, compared to a contraction of 1.8 per cent in the previous year, driven by automobiles, wearing apparel, food and petroleum products.

On a monthly basis, LSM increased 6.5 per cent year-on-year in February 2026 but declined 9.0 per cent month-on-month, mainly due to reduced output in iron and steel, leather and pharmaceuticals.