The Express Tribune Features LSE Modeling Lab’s Latest Analysis on Pakistan’s External Pressures and Growth Outlook

The Lahore School of Economics’ Modeling Lab and Innovation & Technology Centre have released a new analysis on Pakistan’s macroeconomic outlook, as reported by The Express Tribune, highlighting the renewed strain on economic recovery due to a widening current account deficit. The report projects GDP growth for FY 2025-26 at 2.4%, mirroring last year’s performance, after the current account shifted back into a $0.6 billion deficit during the first quarter. Despite improvements in key domestic sectors, the study identifies Pakistan’s persistent vulnerability to external shocks as the primary factor holding back growth. If imports moderate and other indicators strengthen, GDP growth could rise modestly to 2.9%, still below government and global forecasts.

The analysis notes incremental progress on the supply side, with large-scale manufacturing returning to positive growth after three consecutive years of contraction and agriculture expected to move back toward its trend range of 2.5–3%. However, these domestic gains have been overshadowed by rising imports, which, despite stable exports and remittance inflows, have pushed the current account back into deficit. The report also provides updated inflation estimates, projecting consumer inflation at 7.1% for FY26. It attributes past inflation spikes primarily to steep exchange rate depreciation, while highlighting that recent exchange rate stability, improved monetary management, and controlled supplier pricing have helped ease pressures. Rising energy taxes, however, remain a key contributor to inflation.

Looking ahead, the study stresses the need for a more balanced and strategic approach to managing external vulnerabilities. With global trade tensions and tariff barriers limiting Pakistan’s export prospects, traditional export-led strategies face growing constraints. The Express Tribune’s coverage highlights the Modeling Lab’s recommendation that Pakistan may benefit from liberalising imports of investment goods to support productivity and long-term growth, while reducing non-essential consumer imports to preserve external stability. The report concludes that resolving Pakistan’s long-standing structural challenge, balancing growth with external sustainability, will continue to shape macroeconomic policy making in the years ahead.