Turning Stability into Growth

POLICY WIRE — Economic stability is the foundation of national progress. For Pakistan, years of financial pressures, rising prices and external economic challenges have made recovery a difficult but necessary journey. Recent improvements in foreign exchange reserves, international credit ratings and access to global financial markets suggest that the country is gradually rebuilding its economic foundations. While challenges remain, Pakistan now has an opportunity to turn stabilization into sustainable growth, stronger investment and greater prosperity for its people.

In December 2022, Pakistan’s foreign exchange reserves, including gold, stood at $6.7 billion. By June 2026, they had reached $25.3 billion, according to S&P Global. This improvement reflects the progress made through economic adjustments, international support and efforts to restore financial confidence. Finance Minister Muhammad Aurangzeb has expressed optimism about the outlook, telling Reuters that economic growth could exceed 4 per cent in the current fiscal year despite elevated oil prices. He also indicated that five or six state-owned entities could be privatized, potentially generating more than $1 billion.

These developments suggest that Pakistan is gradually moving beyond immediate crisis management. The challenge now is to sustain this progress through consistent policies and structural reforms that strengthen the productive capacity of the economy.

Rebuilding International Confidence

Pakistan’s improving financial indicators have helped strengthen its standing among international investors and financial institutions. In July, S&P Global Ratings upgraded Pakistan to B, its highest rating in nearly eight years, while Moody’s subsequently raised the country’s rating from Caa1 to B3. These upgrades represent encouraging developments in Pakistan’s efforts to restore investor confidence.

The country’s return to international capital markets through a $750 million Eurobond and its first Panda bond demonstrated progress in diversifying financing sources. Meanwhile, a staff-level agreement with the International Monetary Fund (IMF) could unlock approximately $1.2 billion following approval by the Fund’s Executive Board.

Pakistan’s economy grew by 3.7 per cent in fiscal year 2025-26, compared with 3.2 per cent in the previous year, according to provisional figures. Although further acceleration is necessary, the improvement provides a foundation for stronger economic activity across multiple sectors.

The government’s ambition to achieve growth exceeding 4 per cent in 2026-27 is challenging but worth pursuing. The IMF and S&P Global project growth of 3.5 per cent, the World Bank forecasts 3.8 per cent, and the State Bank of Pakistan expects growth between 3.5 and 4.5 per cent. Better agricultural output, investment and industrial activity could help Pakistan move towards the upper end of these estimates.

From Stabilization to Sustainable Growth

Inflation remains a significant concern, with consumer inflation reaching 10.26 per cent in September, compared with 5.76 per cent a year earlier. Pakistan’s dependence on imported energy makes its economy particularly vulnerable to international oil-price fluctuations and geopolitical tensions.

Nevertheless, maintaining fuel availability and monetary discipline remains important for protecting economic stability. The State Bank has kept its policy rate at 11.5 per cent, seeking to guide inflation towards its target range of 5 to 7 per cent. The priority now is to reduce price pressures while encouraging productive investment and protecting vulnerable households.

Remittances continue to provide another important source of economic support. Expected to reach a record $44 billion this year, they strengthen foreign exchange inflows and support millions of families. Pakistan must now complement this contribution by expanding exports, improving industrial competitiveness and encouraging technology-driven investment. A stronger export base would reduce dependence on external borrowing and make the economy more resilient to international shocks.

Privatisation and Economic Reform

Reforming state-owned enterprises is another vital opportunity. The sale of a 75 per cent stake in Pakistan International Airlines for Rs135 billion marked a significant step after decades of financial difficulties. PIA had accumulated losses of approximately Rs800 billion over two decades, highlighting the need for a sustainable turnaround.

Under the announced arrangement, 92.5 per cent of the bid is reinvested in the airline, while the government receives 7.5 per cent and retains a 25 per cent stake. The transaction’s success will depend on whether new investment improves efficiency, service quality and financial performance.

The government is also preparing to privatize power distribution companies, including IESCO, FESCO and GEPCO, with bidding planned for late 2026. Completing these reforms transparently could reduce fiscal pressures and improve service delivery. Competitive bidding, fair valuations and effective regulation will be essential to ensure that privatisation benefits the national economy.

Ensuring Recovery Benefits the People

Economic progress must ultimately improve the lives of ordinary citizens. The World Bank has highlighted the deterioration in poverty indicators following the COVID-19 pandemic, the devastating 2022 floods and persistent inflation.

Targeted relief can help vulnerable households manage immediate pressures, but long-term progress requires employment generation, investment in education and stronger social protection. Pakistan must also broaden its tax base to finance development without relying excessively on borrowing.

The Federal Board of Revenue (FBR) collected Rs3.066 trillion in the first quarter, slightly exceeding its target of Rs3.053 trillion. Sustaining this performance will be important for meeting the full-year target of Rs15.264 trillion. A fairer tax system that brings undertaxed sectors into the net would strengthen public finances while distributing responsibilities more equitably.

Pakistan’s next phase of recovery should focus on four priorities: maintaining price stability, implementing transparent reforms, expanding exports and ensuring that social support reaches those who need it most.

The country’s economic challenges have not disappeared, but neither should its progress be overlooked. Stronger reserves, improved credit ratings and renewed access to international markets provide a foundation on which Pakistan can build. With policy consistency, responsible governance and sustained reform, Pakistan can turn its recent stabilisation into a more resilient economy and a stronger foundation for national prosperity.