The Ministry of Finance’s latest Monthly Economic Update & Outlook paints a pretty encouraging picture of Pakistan’s economy right now — moderating inflation, better fiscal numbers, and that 3.7 percent quarterly GDP growth in Q1 FY26, driven by what they call a broad-based pickup across agriculture, industry, and services.
On the surface, it really does feel like things are finally turning a corner after years of rough patches. But when you dig a little deeper into the actual data and the context, the story gets more complicated and a lot more cautious.
Let’s start with agriculture, which the report highlights as showing resilience with 2.89 percent growth in Q1 FY26. That sounds solid, especially considering the 2025 floods hit crops hard — the government itself has pointed to those as causing major damage. Yet official figures from the State Bank and Federal Committee on Agriculture show several key kharif crops underperforming compared to last year. On top of that, DAP fertilizer offtake dropped sharply (over 16 percent year-on-year in some reports), which farmers usually cut back on when margins are squeezed, cash is tight, or risks feel high — not exactly a sign of booming confidence in yields.
Livestock is another puzzle: the national accounts claim 6.3 percent growth there, but prices for beef, mutton, and fresh milk have shot up much faster than the overall food basket over the past couple of years. With household budgets still stretched, that kind of price surge often points more to supply tightness than robust output. So, reconciling flood damage, falling fertilizer use, and sticky high livestock prices with “broad-based strength” in agriculture feels like a stretch.
Industry gets the same upbeat treatment, with reported growth of 9.38 percent in Q1, boosted by large-scale manufacturing (LSM). The rebound is real — no denying that — but a big part of it comes from a very low base after heavy contractions in previous years. As import curbs have eased and inventories have normalized, output naturally bounces back; it’s more of a mechanical recovery than proof of deep structural change. Then there’s electricity, gas, and water supply showing over 20 percent growth in the GDP accounts, which sits awkwardly next to ongoing tariff hikes squeezing demand, affordability issues for households and businesses, circular debt headaches, and pretty flat overall consumption trends in the power sector.
Services follow a similar script. Finance and insurance supposedly grew over 10 percent, but private sector credit has been mostly flat since early 2025, advance-deposit ratios are near historic lows, and banks are still leaning heavily on State Bank borrowing in open market operations just to park money in government papers. Real expansion in financial services usually shows up in stronger lending to the private sector, more long-term credit, and wider product reach — those signals just aren’t there yet in the numbers.
On inflation, the headline CPI has definitely come down (hitting around 5.6 percent in December 2025, a big drop from last year’s peaks), which is welcome news. But the ministry’s update doesn’t dwell much on core inflation — the stickier, underlying measure that strips out volatile food and energy. Non-food non-energy (NFNE) core inflation is still hanging around 7-8 percent in both urban and rural areas as of late 2025, well above the State Bank’s medium-term target of 5-7 percent. Most of the headline drop so far has come from base effects (last year’s high numbers dropping out) and earlier relief in food/energy prices. As those base effects fade in 2026, persistently high core suggests underlying price pressures haven’t fully cooled. For everyday families, that means costs for things like milk, meat, education, health, and other services stay stubborn — the stuff that really hits monthly budgets. True price stability won’t feel real until core settles durably in target range.
Fiscal-wise, the consolidated accounts show a surplus in Q1 FY26 (around 1-1.6 percent of GDP depending on the exact framing), which looks impressive on paper. But zoom in, and a lot of it comes from one-off or exceptional items: massive profit transfers from the State Bank, higher petroleum levy collections, and provincial cash surpluses. Tax revenue growth has been there, but nothing dramatic in terms of broadening the base or deep structural changes. On the spending side, interest costs remain high, development outlays are still subdued, and things like pensions, subsidies, and bleeding public enterprises haven’t seen major fixes. So the improvement is real year-on-year, but it’s more about IMF discipline and windfalls than a fundamental shift toward sustainable fiscal health.
For the past few years, the big line has been stabilization first — absolutely necessary when default was staring us in the face. But stabilization alone isn’t enough; it can’t be the finish line. The government isn’t wrong to avoid reckless spending to force growth, but the focus does need to shift gradually toward fixing the deep-rooted issues that keep recoveries so fragile: widening the tax net properly, sorting out loss-making state-owned enterprises, rationalizing subsidies smartly, boosting energy and regulatory efficiency, and creating space for real private investment and productivity gains.
The Monthly Economic Update naturally reflects the Finance Ministry’s view — it’s their job to highlight the positives in monthly data. But it could be even more helpful if it went beyond reporting the numbers and laid out, plainly and consistently, the concrete steps being taken (or planned) to tackle those structural bottlenecks. That would move the national conversation from “look how much better the headline is” to “here’s how we’re building something that lasts.”
The numbers are heading in the right direction — that’s progress, no question. But turning stabilization into genuine, durable growth will depend on real movement on those big, tough reforms, not just monthly commentary on food prices or quarterly bounces. That’s the real test ahead.