Business Recorder
ISLAMABAD: Foreign Direct Investment (FDI) into the country declined sharply by 33.4 percent in first eight months (July-February) of the current fiscal year (FY26); portfolio investment remained in the negative territory (-490.8 million USD against - 211 million USD in the same period last year) while Pakistan’s stock market index rose by a whopping 24.6 percent, market capitalisation by 13.6 percent and incorporation of companies by 26 percent. All data released by the Finance Division in ‘Monthly Economic Update and Outlook March 2026’ were pertained to July-February (FY2026) and not included March when the Middle East conflicts were erupted. The only exceptions were foreign exchange reserves, exchange rate, credit to private sector, PSX Index and market capitalisation. READ MORE: Jul-Jan FDI falls 51pc YoY The outlook projected inflation to remain within the range of 7.5-8.5 percent for March 2026.The report also noted that the near-term outlook for Pakistan’s economy remains cautiously optimistic despite emerging geopolitical risks. Exports declined by 5.4 percent while current account balance recorded (-) USD700 million in the first eight months (July-February) of current fiscal year 2026, compared to the same period of last fiscal year. FDI totalled USD1.194 billion during July–February fiscal year 2026, down from USD1.793 billion in the corresponding period of fiscal year 2025. However increase was witnessed in February 2026 when it increased to USD213.5 million against USD132.7 million in February 2025. Main sources of net inflows were China ($635.7 million) and Hong Kong (USD219.0 million). Sector-wise, power (USD627.4 million) and financial business (USD523.2 million) attracted the most FDI. Total foreign investment dropped substantially to USD704.1 million in July–February 2025-26, down from USD1.582 billion a year earlier. Portfolio investment recorded at –490.8 million, compared to -211 million in the same period last year. Private and public FPI recorded net outflows of USD365.6 million and USD125.2 million, respectively. As of March 19, 2026, foreign exchange reserves stood at $21.7 billion, including USD16.4 billion held with State Bank of Pakistan. Remittances were up 10.5 percent to USD26.5 billion, led by inflows from Saudi Arabia (23.3 percent share) and UAE (20.6 percent). Monthly inflows for February reached USD3.3 billion, up 5.2 percent when compared to USD3.1 billion during the same month of last year. Consumer Price Index (CPI) inflation recorded at 7.0 percent on YoY basis in February 2026 as compared to 5.8 percent in the previous month and 1.5 percent in February 2025. On average, during July-February (FY2026), inflation stood at 5.5 percent against 5.9 percent same period last year. Large-Scale Manufacturing (LSM) registered growth of 5.8 percent during July-January (FY2026) against the contraction of 1.7 percent last year. This growth is mainly driven by the automobile, wearing apparel, coke & petroleum products and food with contribution of 1.6 percent, 1.3 percent, 0.9 percent, and 0.6 percent, respectively. In January 2026, LSM index reached at its highest of 144 after March 2022 and witnessed a substantial growth of 10.5 percent year-on-year (YoY) and 12.1 percent on month-on-month (MoM) basis. Cumulative cement dispatches grew by 10.9 percent in July-February (FY2026) and reached 34.8 million tonnes. Domestic dispatches witnessed the growth of 11.9 percent and totalled at 28.5 million tonnes, while exports increased by 6.3 percent, with volume reaching to 6.3 million tonnes. The report noted that for the Rabi season 2025-26, wheat production is targeted at 29.7 million tonnes (last year production: 28.4 million tonnes). The sowing position remained better compared to last year due to government’s support. However, the final yield will largely depend on weather conditions, particularly at the crop’s maturity stage. The imports of agricultural machinery & implements recorded an increase of 17.1 percent to USD90.8 million during July-February (FY2026) from USD77.5 million last year. During Rabi 2025-26 (October-February), Urea offtake recorded at 2,994 thousand tonnes (7.1 percent higher than Rabi 2024-25), whereas DAP offtake stood 685 thousand tonnes. Credit flow to the private sector registered Rs887.5 billion during 1st July to 6th March fiscal year 2026 against Rs574.4 billion) during 1st July to 7th March fiscal year 2025. The report noted that the overall fiscal position during July-January (FY2026) shows remarkable fiscal consolidation, with fiscal deficit contained at Rs. 64.7 billion as compared to Rs. 2,070.9 billion last year. Federal revenue during the period increased by 9.3 percent and reached Rs. 11,218.8 billion, which was contributed by growth in both tax and nontax revenues by 10.5 percent and 7.4 percent, respectively. Federal expenditure declined by 10.7 percent to Rs. 8,329.0 billion. This contraction was mainly driven by curtailment of current expenditure, which fell by 11.4 percent on account of 24.6 percent decline in mark-up expenditure. Development expenditure increased by 13.0 percent, in line with fiscal priorities. Primary surplus remained 3.2 percent of GDP (Rs 4,151.6 billion) as compared to 3.1 percent of GDP (Rs. 3,518.7 billion) last year. During Jul-Feb FY2026, FBR’s tax collection grew by 10.6 percent to reach Rs 8,122.2 billion. This growth was driven by both direct and indirect taxes, 12.2 percent and 9.1 percent, respectively. Within indirect taxes, sales tax, federal excise duty and customs duties increased by 10.0 percent, 14.0 percent and 3.8 percent, respectively. In February 2026, the current account recorded a surplus of USD427 million, containing the aggregate position during July-February FY2026 to a deficit of $700 million. Goods & services exports recorded at USD27.2 billion compared to $27.4 billion last year, of which goods export stood at USD20.7 billion driven by the textile sector. Services export were primarily driven by IT services that increased by 19.7 percent to $3.0 billion. Goods & services imports recorded at USD50.4 billion compared to USD46.0 billion last year, whereas goods imports were USD41.8 billion. Trade deficit of goods & services widened to USD23.2 billion from USD18.6 billion last year. The increase was on account of upward trend in imports as compared to exports which remained stagnant due to drop in food exports, particularly rice. The Monetary Policy Committee in its decision on 09th March, 2026 decided to maintain the policy rate at 10.5 percent. During 1st July–27th February, FY2026 money supply (M2) showed growth of 3.5 percent as compared to contraction of 0.4 percent last year. Within M2, Net Foreign Assets (NFA) of the banking system increased by Rs. 886.1 billion as compared to an increase of Rs. 747.4 billion in last year. Net Domestic Assets (NDA) of the banking sector also increased by Rs. 523.3 billion as compared to a decrease of Rs. 873.1 billion last year. Under the borrowing for budgetary support, government borrowed Rs. 377.3 billion against the borrowing of Rs. 26.5 billion last year. Private Sector has borrowed Rs. 928.7 billion as compared to borrowing of Rs. 607.5 billion last year. Within private sector credit, loans to private sector businesses increased to Rs. 749.4 billion as compared to Rs. 706.6 billion last year. Within business loans, demand for fixed investment loans reached at Rs. 369.6 billion as compared to Rs. 187.4 billion during same period last year. Equity market witnessed bearish trends at the Pakistan Stock Exchange (PSX) in February 2026. The KSE-100 Index lost 16,112 points, closing at 168,062.2, as investors’ exercised caution due to continued geopolitical tensions in the region. Market capitalization declined by Rs. 1,897.3 billion, reaching Rs. 18,930.2 billion by the end of February. In February 2026, the Bureau of Emigration & Overseas Employment registered 61,433 workers, a 22.8 percent increase from 50,030 in February 2025. The Pakistan Poverty Alleviation Fund, in partnership with 24 organizations, disbursed 8,690 interest-free loans worth Rs. 543.0 million during February 2026. Since 2019, a total of Rs. 124.0 billion have been provided to the borrowers. During Jul-Jan FY2026, Rs. 329.8 billion was spent under the BISP, representing a 36.9 percent increase compared to last year. The report noted that recent data indicates improving momentum in the industrial sector, with higher imports of textile machinery, transport and construction related inputs, likely to translate into higher domestic industrial activity. While rising global oil prices and potential supply chain disruptions may exert pressure on industrial input costs, the government is actively pursuing prudent measures, including maintaining adequate petroleum reserves, managing energy demand, and adhering to fiscal austerity to protect domestic economy. On the external front, high inflows of remittance are expected, particularly increase in transfers associated with Eid festival, although their trajectory will depend on economic conditions in the host countries. The current account deficit is likely to remain manageable, while rising oil prices pose a risk to the import bill. Notwithstanding the downside risks amid global uncertainties, the latest indicators suggest that the economy is better positioned to absorb external shocks and maintain overall resilience in the coming months. In the wake of emerging US-Israel & Iran conflict, proactive planning and austerity measures on the energy front are helping secure adequate fuel reserves thereby ensuring smooth operations. Despite regional and external challenges, Pakistan’s preparedness and reform measures, along with encouraging progress on the domestic front, are laying the groundwork for sustainable growth prospects, it added. Copyright Business Recorder, 2026
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