Pakistan’s economy is showing signs of a remarkable turnaround, with revised GDP growth figures and a sharp decline in sovereign default risk signaling a brighter future.
The National Accounts Committee (NAC) recently updated the GDP growth rate for FY2025 to 3.04 percent, up from an earlier estimate of 2.68 percent, driven by a robust 5.66 percent growth in the fourth quarter (April–June). Coupled with a dramatic reduction in default risk—making Pakistan the second-best performer globally in Credit Default Swap (CDS)-implied data—this progress reflects a nation clawing its way back from the brink of economic crisis. For a country that faced critically low reserves and a looming default threat just two years ago, these developments offer hope, tempered by the need for sustained reforms to solidify gains.
The NAC’s latest meeting brought welcome news: Pakistan’s economy grew by 3.04 percent in FY2025, surpassing the provisional estimate of 2.68 percent. This upward revision reflects stronger-than-anticipated performance across the first three quarters—Q1 rose from 1.37 percent to 1.80 percent, Q2 from 1.53 percent to 1.94 percent, and Q3 from 2.40 percent to 2.79 percent—culminating in a stellar 5.66 percent growth in Q4. The economy’s size now stands at $407.2 billion, with per capita income at $1,812, a modest but meaningful step forward for a nation of over 240 million.
The Q4 surge was powered by diverse sectors. Industry led the charge with a remarkable 19.95 percent growth, a stark contrast to the -3.06 percent recorded in the same period last year. The electricity, gas, and water supply sector was the standout, soaring 121.38 percent due to higher subsidies, a lower deflator, and a low base effect after a -31.59 percent slump. Mining and quarrying grew by 1.94 percent, and large-scale manufacturing added a solid 2.96 percent. Services also contributed, expanding by 3.72 percent, while agriculture eked out a modest 0.18 percent growth despite a -17.55 percent decline in major crops like wheat and cotton.
Agriculture’s mixed performance highlights both challenges and resilience. While important crops suffered, other crops like green fodder (14.2 percent), onions (12.6 percent), and mangoes (26.4 percent) posted double-digit gains. Livestock (1.44 percent), forestry (3.60 percent), and fishing (2.23 percent) also supported the sector’s modest uptick. These gains, though small, reflect the sector’s adaptability in the face of climate challenges and supply chain disruptions, such as recent floods.
The NAC also revised FY2024’s growth to 2.58 percent from 2.51 percent, with slight improvements in industry (-1.19 percent from -1.37 percent) and services (2.25 percent from 2.19 percent). Agriculture held steady at 6.40 percent, underscoring its role as a backbone during turbulent times. These revisions paint a picture of an economy steadily regaining its footing, with each sector contributing to a fragile but promising recovery.
Perhaps the most striking indicator of Pakistan’s turnaround is its plummeting sovereign default risk. According to Bloomberg’s CDS-implied data, Pakistan recorded one of the sharpest drops in default probability globally, ranking second only to Türkiye among emerging markets (EMs). Over the past 15 months (June 2024 to September 2025), the country’s default probability fell by 2,200 basis points, outpacing South Africa (3 percent) and El Salvador (2 percent). Unlike peers like Argentina, Egypt, and Nigeria, where default risks have risen, Pakistan has shown consistent quarterly improvement—a rare feat in the EM universe.
A Credit Default Swap (CDS) acts like financial insurance, with lower costs signaling reduced investor fears of a borrower defaulting. Pakistan’s plummeting CDS costs reflect growing global confidence in its ability to meet debt obligations. This optimism stems from macroeconomic stabilization, timely debt servicing, and adherence to tough IMF-prescribed reforms. Support from allies like China, the UAE, and Saudi Arabia, alongside a critical IMF loan tranche in 2023, helped Pakistan avert a default that once seemed imminent. Positive ratings upgrades from S&P Global, Fitch, and Moody’s further bolster this narrative, positioning Pakistan as a standout in the EM credit story.
Pakistan’s journey from crisis to recovery has been arduous. Just two years ago, the country teetered on the edge of default, with foreign exchange reserves critically low and a balance-of-payments crisis looming. The IMF’s intervention, combined with bilateral support, provided a lifeline, but it was Pakistan’s commitment to structural reforms that turned the tide. Fiscal discipline, improved revenue collection, and efforts to stabilize the rupee have restored market credibility. The 3.04 percent GDP growth, while modest, signals resilience in a nation battered by floods, inflation spikes, and global uncertainties.
Yet, challenges remain. Agriculture’s vulnerability to climate shocks, as seen in the decline of major crops, underscores the need for resilient farming practices and better irrigation infrastructure. Industry’s reliance on subsidies, particularly in electricity, raises questions about sustainability. The services sector, while steady, must diversify to create jobs and drive inclusive growth. Moreover, while the drop in default risk is a triumph, maintaining investor confidence requires consistent policy execution and debt management.
Pakistan’s economic story is one of cautious optimism. The revised GDP growth and plummeting default risk reflect a nation rebuilding its economic foundation. But this is no time for complacency. Policymakers must double down on reforms—streamlining subsidies, investing in climate-resilient agriculture, and fostering industrial innovation. Strengthening trade links and boosting exports, particularly in high-value sectors, can further stabilize the external sector.
For ordinary Pakistanis, the $1,812 per capita income is a reminder of the long road ahead. Growth must translate into jobs, better wages, and improved living standards. The global vote of confidence, as seen in the CDS data, is a chance to attract investment and build infrastructure that lasts. Pakistan stands at a crossroads: sustain the momentum, and it could cement its place as an emerging market success story. Falter, and the gains could slip away. For now, the numbers tell a story of progress—one that Pakistan must write with bold, unwavering steps.