PAKISTAN’S growth projections for the current fiscal present a cautiously hopeful picture, though geopolitical risks have lately been outweighing optimism. The finance minister’s assertion that the economy could expand by around 4pc is based on improvements in macroeconomic indicators and a recovery that has gathered some pace. Data showing 3.8pc growth in the first half of the year, alongside a 5.9pc expansion in large-scale manufacturing, suggests that the economy had begun to show positive signs after a long period of stress. However, this recovery already appears under strain. Economic activity has moderated from March onwards, with agriculture facing headwinds from the lower than expected wheat output. More importantly, the State Bank’s latest monetary policy review has introduced a note of caution. The bank expects growth to gravitate towards the lower end of its earlier projected 3.75-4.75pc range for FY26 due to a likely slowdown in the fourth quarter.

This raises questions about the durability of recovery since the Middle East crisis has emerged as a key risk, keeping global energy prices elevated and injecting volatility into our external account. For an import-dependent economy like Pakistan, this translates into higher inflation, elevated production costs, pressure on balance-of-payments and tighter financial conditions — all of which will weigh on growth. The risks are not confined to the current year. The SBP has cautioned that economic activity could moderate further in FY27 if geopolitical tensions persist and energy markets remain unsettled. This warning highlights a structural vulnerability: Pakistan’s growth trajectory is heavily reliant on external factors beyond its control. Even as remittances and recent inflows, including deposits from Saudi Arabia, have helped stabilise the external position, these buffers may prove insufficient if global conditions deteriorate further. The government’s pivot towards commercial borrowing, including plans for Panda bond and potential Eurobond and Sukuk issuances, signals confidence. But it also indicates a shift towards costlier sources of financing, which could complicate the debt dynamics if growth underperforms. In this context, the projection of 4pc growth appears to be an upper-bound scenario contingent on favourable external conditions. Nonetheless, the underlying trend as suggested by the SBP, points to a gradual loss of momentum. Without sustained easing in global energy prices, recovery will remain uncertain.

Published in Dawn, April 30th, 2026