The central bank, however, warned that the ongoing conflict in the Middle East poses significant risks to Pakistan’s economic outlook, particularly through supply chain disruptions, inflationary pressures, external trade and remittance flows.

“However, its impact on overall economic activity is not expected to be significant in FY26,” the SBP said.

The report projected Pakistan’s real GDP growth near the lower end of the previously estimated 3.75% to 4.75% range for FY26.

The SBP said the current account deficit was also expected to remain close to the lower bound of its earlier forecast of 0% to 1% of GDP despite stronger economic activity and rising commodity prices.

“However, a surge in international oil prices and its impact on other commodity prices are expected to keep the NCPI inflation above the upper bound of the medium-term target range of 5 to 7 percent for most of FY27,” it added.

According to the report, remittance inflows may face pressure in the final quarter of FY26, given that Gulf Cooperation Council countries accounted for around 55% of Pakistan’s total remittances between FY21 and FY25.

“However, on a full-year basis, remittances are expected to remain strong in FY26, which would partially offset the widening in the trade deficit.”

The central bank said prudent monetary and fiscal policies, structural reforms, favourable commodity prices and the International Monetary Fund (IMF) programme helped strengthen economic stability during H1-FY26.

It noted that average inflation eased further, while foreign exchange purchases and financial inflows improved external buffers.

“The macroeconomic stability, in turn, facilitated growth momentum,” the report said.

The SBP warned that rising energy prices, along with higher insurance and freight costs, could increase Pakistan’s import bill.

However, it said the government’s decision to pass on higher oil prices domestically, alongside energy conservation measures and lower LNG imports, may help contain demand and reduce energy imports.

Exports, meanwhile, are expected to remain weak due to slower global growth, low rice prices, the closure of Pakistan’s western border and ongoing global tariff adjustments.

According to the report, Pakistan’s economy grew 3.8% in H1-FY26 — nearly double the pace recorded during the same period last year — driven mainly by industrial activity, followed by services and agriculture.

The rise in economic activity also increased imports, while a sharp decline in rice exports reduced export earnings.

“Nonetheless, steadily rising workers’ remittances continued to finance a major part of the deficits in trade, services, and primary income balance, helping to keep the current account deficit at moderate levels,” it said.

The SBP added that inflation moderated during H1-FY26 due to exchange rate stability, softer global commodity prices, fiscal consolidation and lower electricity tariffs.

“The NCPI inflation averaged 5.2 percent in H1-FY26, about 2 percentage points lower compared to the same period last year,” the report noted.

The report further said Pakistan posted a fiscal surplus in H1-FY26 for the first time since FY02, helped by lower interest payments and fiscal consolidation measures.

The central bank stressed that Pakistan still needed deep structural reforms to achieve sustainable high growth.

“These specifically need to address the long-standing issues, including low savings and investment, weak competitiveness, falling exports, subdued foreign direct investment, and the persistently low tax to GDP ratio,” it highlighted.

On climate change, the SBP noted that Pakistan remained among the countries most vulnerable to climate-related disasters despite contributing minimally to global greenhouse gas emissions.

“Furthermore, Pakistan’s emissions intensity of GDP is relatively high, reflecting structural inefficiencies and a carbon-intensive growth trajectory. This requires substantial investments in climate mitigation and adaptation, which currently remain largely unmet due to low international climate inflows, and challenges to domestic public and private sector financing,” it said.