LSE Policy Uncertainty Index Drops in September 2026 amid Reserve Growth and Rate Stability

Pakistan’s economic, trade, and investment policy landscape saw a notable easing of uncertainty in September 2026, driven by rising foreign exchange reserves, stable interest rates, and successful quarterly tax collection, according to the latest study from the Lahore School of Economics. The LSE Policy Uncertainty Index dropped 24.21% month-on-month to 162.46, signalling improved business and investor confidence. Key stabilization anchors included the State Bank of Pakistan holding its policy rate at 11.5% alongside foreign exchange reserves strengthening to $26.8 billion, providing short-term clarity on borrowing costs and external financial stability, despite a subsequent 50-basis-point rate hike to 12%. Further financial relief came from the Federal Board of Revenue meeting its overall Q1 FY2026–27 revenue target and a record $3 billion Eurobond issue that bolstered international capital market access.

However, the report highlights that underlying fiscal and energy pressures continue to cap long-term economic momentum. Review talks with the International Monetary Fund remain stalled over unresolved structural issues, including fuel subsidy schemes, gas-sector receivables, and rising circular debt. While overall revenue targets were met, an income tax shortfall underscores ongoing pressure on state finances. Energy policy uncertainty stayed elevated due to daily fuel price adjustments and high petroleum levies. External trade risks were further compounded by geopolitical tension; ongoing shipping disruptions in the Strait of Hormuz coupled with Brent crude surging past $100 per barrel threaten to swell Pakistan’s import bill and reignite domestic inflation.

Despite these overhangs, sector-specific indices showed progress as reforms advanced. The Lahore School Trade Policy Uncertainty Index declined 22.1% to 192.89, bolstered by a 7% growth in July–August exports, a narrowing trade deficit, and reduced duties on imported mobile phones, even as delays in finalizing the IMF-reviewed Auto Industry Development and Export Policy (2026–31) left automotive investors without clarity. Concurrently, the Investment Policy Uncertainty Index dropped 6.45% to 145, supported by progress in power-sector reforms, DISCO privatization, and a revised telecom bill. Ultimately, the authors conclude that while international bond issuances and reserve buffers offer immediate breathing room, unresolved IMF negotiations and global energy shocks pose continuous threats to sustained stability.