Govt sets 4pc growth target for FY2026-27 as economy gains stability

ISLAMABAD: The federal government on Monday approved a macroeconomic framework targeting 4 per cent economic growth and an inflation rate of 8.2 per cent for the fiscal year 2026-27, as policymakers seek to consolidate economic stability and accelerate development across key sectors of the economy.

The targets were endorsed during a meeting of the Annual Plan Coordination Committee (APCC) in Islamabad and will now be presented to the National Economic Council (NEC) for final approval on June 3. The NEC, chaired by Prime Minister Muhammad Shehbaz Sharif, is the country's highest economic policymaking forum and includes the chief ministers of all four provinces alongside federal ministers.

The APCC meeting, chaired by Federal Minister for Planning and Development Ahsan Iqbal, was attended by provincial development ministers and senior officials from both federal and provincial governments.

According to the APCC working paper, Pakistan’s economy is projected to grow by 4 per cent in FY2026-27, building on the recovery witnessed during the outgoing fiscal year. The economy recorded a growth rate of 3.7 per cent in FY2025-26, falling short of the official target of 4.2 per cent but improving from the revised growth rate of 3.2 per cent achieved in FY2024-25.

The government believes that stronger performance in agriculture, industry and services will support the targeted expansion next year. Commodity-producing sectors are expected to grow by 3.9 per cent, while the agriculture sector is projected to expand by 3.8 per cent.

Agricultural growth is expected to be driven by a recovery in major crops, which are forecast to grow by 3.6 per cent, along with improvements in cotton ginning and continued strong performance in the livestock sector. Livestock, a key contributor to the rural economy, is expected to register growth of 3.9 per cent.

The industrial sector is projected to grow by 4 per cent, supported by a significant revival in large-scale manufacturing (LSM), which is targeted to expand by 4.5 per cent. Additional contributions are expected from mining and quarrying, construction activity and the energy sector, including gas and water supply services.

Meanwhile, the services sector—the largest component of the national economy—is expected to post growth of 4.2 per cent. Major contributors are likely to include wholesale and retail trade, transport and communications, financial services and the rapidly expanding information and communication technology sector, which is projected to grow by an impressive 7.7 per cent.

The Planning Commission noted, however, that achieving these targets would depend on effective macroeconomic management, continued policy consistency and a stable external environment.

Under the proposed framework, national savings are expected to rise to 14.3 per cent of GDP compared to 14.1 per cent in the current fiscal year. Total investment is projected to increase to 15 per cent of GDP from 14.4 per cent, reflecting efforts to stimulate economic activity while maintaining fiscal discipline.

Public sector investment is projected to remain at 3 per cent of GDP, while private investment is expected to rise from 9.6 per cent to 10.3 per cent of GDP, indicating growing confidence among businesses and investors.

The government has also set an inflation target of 8.2 per cent for the next fiscal year, anticipating that fiscal consolidation measures and improving macroeconomic conditions will help keep prices under control despite global economic uncertainties.

Officials acknowledged that the external sector could face challenges as import demand recovers and debt repayment obligations increase. These factors may widen the current account deficit. However, strong remittance inflows from overseas Pakistanis, a recovery in exports and expected external financing support are projected to help maintain external sector stability.

A key feature of the government's economic strategy is job creation. The APCC has set a target of generating two million new jobs during FY2026-27 through higher investment levels and stronger economic growth.

Of the projected employment opportunities, around 1.1 million jobs are expected to be created in the services sector, 500,000 in industry and 400,000 in agriculture. Policymakers believe that public investment will encourage greater private sector participation, creating broader employment opportunities across the economy.

The Planning Commission also highlighted ongoing federal and provincial initiatives aimed at enhancing labour market participation, promoting entrepreneurship, improving technical skills and strengthening job-matching mechanisms.

Reviewing the outgoing fiscal year, the Annual Plan document noted that Pakistan's economy demonstrated considerable resilience despite facing significant challenges, including flash floods and the economic repercussions of the US-Iran conflict.

During the first eight months of FY2025-26, inflation remained relatively contained, while large-scale manufacturing recovered after two consecutive years of contraction. Improved external sector performance, driven by strong remittance inflows and growing services exports, strengthened the balance of payments and helped boost foreign exchange reserves.

The resulting stability in the exchange rate and improved investor confidence contributed to record gains in the stock market during the year.

However, the outbreak of the US-Iran conflict in February 2026 triggered a sharp increase in global oil prices, pushing inflationary pressures higher. International oil prices surged from around $72 per barrel before the conflict to nearly $120 per barrel at their peak.

As a result, average inflation during July-April FY2025-26 increased to 6.2 per cent compared to 4.7 per cent during the corresponding period of the previous fiscal year. Monthly inflation also accelerated sharply, reaching 10.9 per cent in April 2026 compared to just 0.3 per cent in April 2025.

Despite these challenges, Pakistan's economy expanded by 3.7 per cent, supported by improvements across agriculture, industry and services. Large-scale manufacturing emerged as a bright spot, recording growth of 6.1 per cent compared to a contraction of 0.7 per cent in the previous fiscal year.

The Planning Commission observed that although the trade deficit widened due to higher import demand and weaker exports, strong remittance inflows and expanding services exports helped offset external pressures and maintain overall economic stability.

Officials expressed confidence that continued fiscal prudence, structural reforms and targeted investments would enable the economy to sustain its recovery trajectory and achieve the government's growth objectives in the coming fiscal year.