Govt expects easing inflationary pressure in new fiscal year following reopening of Strait of Hormuz

ISLAMABAD: After inflation rose to a fresh peak of 12pc in June, the government expects inflationary pressures to ease in the new fiscal year following the opening of the Strait of Hormuz as peace efforts gather pace.

“With geopolitical tensions expected to ease following the US-Iran ceasefire, Pakistan’s economic outlook for FY2027 is expected to improve further, supported by reform continuity, stronger confidence and a more enabling pro-business environment”, said the Ministry of Finance in its Monthly Economic Update and Outlook (June 2026).

It said that the recent easing of geopolitical tensions and ongoing peace efforts in the Middle East had improved global market sentiment.

“Consequently, international crude oil prices had eased from their recent highs. This was expected to reduce imported inflationary pressures and help lower domestic fuel and transportation costs,” the ministry noted.

While anticipating June inflation, as measured by the consumer price index (CPI), to remain within the range of 11-12pc, the ministry said lower international oil prices would support Pakistan’s external account by containing the oil import bill.

Reviewing the close of fiscal year 2025-26, it said macroeconomic stabilisation had largely been achieved and Pakistan’s economy was expected to maintain its growth momentum, supported by improving macroeconomic fundamentals, sustained expansion in manufacturing, particularly large-scale manufacturing (LSM), a stable external account, improved fiscal discipline, and continued resilience in the agriculture sector.

“On the domestic front, prudent macroeconomic policies, continued fiscal consolidation, and targeted support for productive sectors are expected to sustain economic growth while preserving macroeconomic stability,” it said, adding that the external sector outlook had also strengthened further, supported by record workers’ remittances in May 2026 and continued growth in IT exports.

Robust workers’ remittances and IT exports, it said, were expected to reinforce the balance of payments, support foreign exchange reserves, and enhance resilience against external shocks.

“Overall, with geopolitical risks receding, global energy prices moderating, inflationary pressures easing and external buffers improving, Pakistan’s economic outlook remains favourable, with growth expected to strengthen while maintaining macroeconomic stability”, the finance ministry maintained.

It further said that the national economy was concluding FY2026 on a “stronger footing”, with improved macroeconomic stability and sustained recovery in economic activity.

Real GDP growth had reached 3.7pc, the highest in four years, while the size of the economy had expanded to $452.1 billion.

“Despite early-year flood-related disruptions and subsequent volatility in global commodity markets, stabilisation gains were preserved, growth remained broad-based across agriculture, industry and services, and average inflation stayed in single digits within the target range.”

According to the ministry, fiscal performance also remained encouraging, underpinned by effective expenditure management, revenue mobilisation and provincial surpluses, which helped narrow the fiscal deficit and achieve a primary surplus of 3.5pc of GDP during Jul-Apr FY2026.

The external sector also remained stable, supported by sustained growth in remittances and IT exports, a broadly stable exchange rate and improved foreign exchange reserves and import cover.

“The current account recorded a surplus of $255 million during Jul-May FY2026, reflecting continued resilience in the external account.”

“Investor confidence also improved during the year, supported by the Government’s continued commitment to the IMF-supported Extended Fund Facility and Resilience and Sustainability Facility programmes and reinforced by rating upgrades from Fitch and Moody’s,” it asserted.

It added that these positive developments were reflected in Pakistan’s re-entry into international capital markets through the issuance of a Eurobond after four years, the successful launch of the Panda Bond, and the strong performance of the KSE-100 Index, which reached an all-time high and remained among the fastest-growing markets in Asia.

“Building on these gains, the government announced the Budget 2026-27 with a strategic focus on export-led growth, taxpayer relief, enhanced social protection and fiscal discipline.

“The budget aims to consolidate hard-earned macroeconomic stability while improving business competitiveness, fostering investment, broadening the tax base, advancing energy sector reforms and creating a conducive environment for stronger, more sustainable and inclusive growth,” it said,

The ministry concluded that with geopolitical tensions expected to ease following the US-Iran ceasefire, Pakistan’s economic outlook for FY2027 is expected to improve further, supported by reform continuity, stronger confidence and a more enabling pro-business environment. ...