Business Recorder
EDITORIAL: March 2026 Economic Update and Outlook was released on 31 March late evening after the Finance Minister had, as per process, reviewed it. Those waiting for the document to be uploaded to better assess the fallout of the Middle East conflict on our economy — that began on the last day of February — may have been disappointed given that the bulk of the data in these monthly updates pertains to the previous month (February in this case). However, the Update could not completely ignore the ongoing conflict that is the major subject of all global and domestic news reports as well as diplomatic efforts spearheaded by regional partners, including Pakistan and China, since it began. There are instances where mention is made of the conflict though it is minimised with a view to showing an economy that is robust. The claim that “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.” Two available indicators that test these claims are: (i) a further decline in portfolio investment – from negative USD 463.9 million July-January 2026 to negative USD 490.8 million July-February 2026 (though the policy rate remained unchanged at 10.5 percent). Not highlighted was the PSX index decline – from 26 February figure of 168,893 as opposed to 146.842 on 30 March; (ii) market capitalisation on 26 February was 19.01 trillion rupees declining to 16.32 trillion rupees by 30 March 2026; and (iii) exchange rate improved slightly from 279.2 on 30 March 2026 against 279.5 on 26 February, which brings to mind the International Monetary Fund’s repeated exhortation that “exchange rate flexibility should continue to serve as the primary shock absorber, including from spillovers from the conflict in the Middle East.“ The update further notes that the sowing position remained better compared to last year due to government support but ended on the note that final yield will largely depend on weather conditions particularly at the crop’s maturity stage. This was on the back of a substantial increase in agricultural credit by 249.3 billion rupees - from 638.2 billion rupees 01 July 2025 to 13 February 2026 to 887.5 billion rupees till 16 March 2026 – an increase that should have targeted a rise in yield. Large-scale manufacturing sector grew by 5.75 percent July-February against 4.82 percent July-January this year – a figure contested by the industrial sector citing massive unit closures due to much higher input costs than regional countries and supported by the government’s ongoing consideration to reduce these input costs, including utility tariffs, increasing monetary and fiscal incentives – policies that are opposed by the Fund under the ongoing programme. Remittances rose to USD 26.5 billion July-February this year against USD 24 billion in the comparable period the year before though the inflows declined in February as opposed to the month before – a declining trend likely to increase due to the conflict. And exports declined from USD 21.9 billion (July-February 2025) to USD 20.7 billion in the same period this year or a decline of USD 1.2 billion while imports rose from USD 38.4 billion last year to USD 41.8 billion this year or a rise of USD 3.4 billion, indicative of a worsening trade balance. This is likely to widen more as the impact of the shutting down of the Strait of Hormuz is calculated with an additional toll tax payment to Iran, if applicable to Pakistani-flagged ships passing through. The Update notes the increase in collections by the Federal Board of Revenue (11.7 percent July-February 2026 against the same period the year before) but of course missed out on the shortfall from what was targeted – an amount that was announced by the Federal Board of Revenue on the same day as the Update was released – a disturbing shortfall of 610 billion rupees. Expenditure declined by 10.7 percent, a contraction mainly driven by a decline of the policy rate that reduced the mark-up payable; however, with inflation set to rise as the Middle East conflict continues the Fund is likely to insist on a rise in the policy rate – evident in the 11 March press release that specifies that the State Bank of Pakistan must maintain a “sufficiently tight monetary policy to ensure inflation remains durably within the SBP’s target range.” The economic indicators in Pakistan as in other countries are likely to nosedive and the impact will continue till the duration of the conflict. There is an urgent need to jumpstart meaningful structural reforms in the energy and tax sectors with a view to improving sectoral performance as well as ensuring that their fallout is minimised onto the hapless people of this country and to cut expenditure not through reliance on reducing the policy rate or slashing development expenditure but on slashing current expenditures that benefit the influential; notably, salaries and pensions of those who are paid at the taxpayers’ expense. Copyright Business Recorder, 2026
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