Finance Division warns of rising inflation risks

The Finance Division has projected consumer inflation at 9–10% in July 2026, warning that higher global oil prices and renewed geopolitical tensions in the Middle East could keep price pressures elevated despite improving macroeconomic fundamentals.

 

In its Monthly Economic Update and Outlook for July 2026, the ministry said renewed US-Iran hostilities pose risks to inflation, external accounts and financial markets through higher energy prices and increased volatility. However, it noted that stronger economic fundamentals, improved external buffers and continued policy vigilance have enhanced Pakistan's ability to withstand external shocks.

 

The report also highlighted a 33.9% decline in net foreign direct investment (FDI) to $1.64 billion in FY2025-26 from $2.48 billion a year earlier, while exports fell 4.6% to $30.8 billion.

 

Despite weaker foreign investment, workers' remittances rose 8.6% to a record $41.6 billion during FY2025-26, while Large-Scale Manufacturing (LSM) expanded 5.8% during July-May.

 

The Finance Division said Pakistan's foreign exchange reserves stood at $22.7 billion as of July 17, including $17.3 billion held by the State Bank of Pakistan (SBP). Meanwhile, the current account posted a modest $139 million deficit for FY2025-26.

 

The report noted that headline inflation eased to 11.1% year-on-year in June from 11.7% in May, while average inflation for FY2025-26 stood at 7.1%. The Monetary Policy Committee kept the benchmark policy rate unchanged at 11.5%, citing an improved macroeconomic outlook but cautioning that renewed conflict in the Middle East remains a key downside risk.