Finance ministry warns of external sector risks amid global uncertainty

ISLAMABAD: The Ministry of Finance has said Pakistan’s external sector could face pressure from emerging global uncertainty and regional supply disruptions, even as the country posted a primary surplus of 3.3 per cent of gross domestic product (GDP) during the current fiscal year’s first eight months.

In its Monthly Economic Update and Outlook for April 2026, issued on Thursday, the ministry said, ‘External demand may remain supportive in some markets but the balance of risk becomes less favourable than in a pre-war setting.’ It added that the ongoing conflict in the Middle East was creating fresh risks and increasing uncertainty around the macroeconomic outlook.

The ministry projected inflation, measured through the consumer price index, at 8 to 9 per cent for April, up from 7.3 per cent in March. Inflation had edged higher but remained within the annual target.

The overall primary surplus in the first eight months of the fiscal year stood at 3.3 per cent of GDP, or Rs4.319 trillion, compared with 3 per cent of GDP, or Rs3.452 trillion, in the same period last year.

The Federal Board of Revenue collected Rs9.306 trillion in taxes during July-March FY2026, marking a 10.1 per cent increase. The ministry said the rise came from both direct and indirect taxes, which grew by 12.4 per cent and 7.9 per cent, respectively. Within indirect taxes, sales tax rose 8.5 per cent, customs duties 3 per cent and federal excise duty 13.3 per cent.

The ministry said the government’s revenue and expenditure management strategy was reflected in the fiscal position during July-February FY2026, when the deficit narrowed to 0.1 per cent of GDP, or Rs161.2 billion, from 2.2 per cent of GDP, or Rs2.524 billion, in the corresponding period last year.

Net federal revenue increased by 10.1 per cent to Rs7.463 trillion, supported by growth in both tax and non-tax revenues of 10.6 per cent and 7.7 per cent, respectively. ‘Total federal expenditure declined by 10.9pc to Rs9.232tr. This contraction was mainly driven by curtailment of current expenditure, which fell by 11.4pc on account of 25pc decline in markup expenditure,’ the ministry said.

Economic activity and external position

The ministry said the economy completed the third quarter on a stable footing, supported by macroeconomic stability and gradually improving growth momentum. Manufacturing maintained its expansion, while the external sector recorded three straight monthly current account surpluses, driven by strong remittances and higher information technology exports.

It also said timely repayment of a Eurobond, a successful staff-level agreement with the International Monetary Fund and Fitch’s B- rating with a stable outlook had strengthened external credibility and reflected continued reform efforts.

According to the ministry, despite geopolitical uncertainty, key macroeconomic indicators remained stable. It pointed to continued growth in large-scale manufacturing, a broad-based recovery in the automobile sector and higher cement dispatches as signs of improving domestic demand.

‘Based on this momentum, economic activity is expected to remain firm,’ the ministry said, while adding that ‘amid ongoing supply chain constraints, inflation is anticipated to remain within the range of 8-9pc for April 2026’.

Despite risks stemming from the Middle East war, including higher global commodity prices and supply chain disruptions, the external position was expected to stay stable because of stronger remittance inflows and IT exports.

‘Overall, the economy appears well-positioned to continue its growth trajectory, supported by the strengthening of macroeconomic fundamentals vis-à-vis appropriate and swift policy response to minimise the adverse impacts,’ the ministry said.

The conflict continued to affect oil supply and pricing amid uncertainty over a durable settlement, adding to volatility in global energy markets. At the same time, the ministry said major trading partners, including the United States, were showing resilience despite global uncertainty. Pakistan’s main export destinations, with the exception of China, which has shown persistent moderation in growth momentum for several months, were near their long-term potential.

The ministry also said the Bureau of Emigration and Overseas Employment registered 50,506 workers in March 2026, down by almost 14 per cent from 58,555 in March 2025.