Pakistan Posts Fastest Growth in Four Years as KSE-100 Closes at a Record High

Pakistan’s economy delivered its strongest performance in four years in fiscal year 2025-26, with real GDP growing 3.7% even as the benchmark KSE-100 index shattered previous records — a combination that officials are framing as validation of the reform path pursued since the country’s latest IMF programme began.

A Recovery Four Years in the Making

The 3.7% growth rate marks an improvement on the 3.18% recorded the previous fiscal year, though it still falls short of the government’s original 4.2% target for FY26. Per capita income rose to $1,901 from $1,751 the year before, according to the government’s FY26 Economic Survey, while sectoral growth was broad-based: agriculture expanded 2.89%, industry 3.51%, and services 4.09%.

Finance Minister Muhammad Aurangzeb has pointed to a specific combination of factors behind the turnaround: strong corporate earnings, a declining policy rate, falling inflation, and the successful completion of IMF-EFF programme reviews, which together helped stabilise the macroeconomic environment and restore investor confidence after several years of crisis-mode policymaking.

KSE-100’s Record Run

The Pakistan Stock Exchange has been the most visible beneficiary of that stabilisation. The KSE-100 closed at a record 180,301 points, a gain of more than 43% over the fiscal year, with the number of active investors on the exchange climbing nearly 50% to over 583,000. Market capitalisation on the exchange rose from Rs15,237 billion to Rs16,534 billion between June 2025 and March 2026 alone, an increase of roughly Rs1,298 billion, or 8.5%, in just nine months.

That rally reflects a broader re-rating of Pakistani equities as the IMF-EFF programme has proceeded through successive tranche disbursements without the disruptions that derailed earlier attempts at fiscal consolidation.

Remittances Remain the External-Account Anchor

Workers’ remittances continue to do the heavy lifting on Pakistan’s external account. Inflows rose 8.2% to $30.3 billion during the July-March period of FY26, and the momentum has carried into the new fiscal year: overseas Pakistanis sent $3.631 billion in July 2026 alone, up 13% year-on-year and 4.5% month-on-month, according to State Bank of Pakistan data that Prime Minister Shehbaz Sharif publicly welcomed as “highly encouraging.”

Saudi Arabia and the UAE remain the two largest source countries, though the reliance on remittances rather than export growth has drawn scrutiny from economists. A structural current account surplus of $72 million during July-March FY26 — down sharply from a $1.7 billion surplus in the same period a year earlier — underscores that the underlying trade position has actually weakened even as remittance-driven headline figures look strong.

The Dutch Disease Debate

Not every economist is celebrating the remittance dependency uncritically. Pakistan received roughly $95.8 billion in remittances between FY2023 and FY2025, compared with $91 billion in merchandise exports over the same period — a reversal of the traditional growth model built on export competitiveness. Research cited in Pakistani economic commentary suggests that once the remittance-to-GDP ratio exceeds roughly 6%, it can begin to exacerbate deindustrialisation and slow capital accumulation, a pattern economists have labelled a symptom of Dutch disease.

Aurangzeb has pushed back on the more alarmist framing, arguing that remittances are and will remain a critical structural component of Pakistan’s external balancing position, while acknowledging the need to simultaneously grow exports rather than treat the two as substitutes.

Looking Ahead to FY27

The government has set a 4% GDP growth target for FY2026-27 and aims to narrow the fiscal deficit further to 3.6% of GDP. Officials are pointing to continued fiscal discipline, record remittance inflows, expanding technology exports, and renewed foreign investment as the pillars expected to sustain the recovery into the new fiscal year — though the labour-migration data offers a more cautious signal: roughly 50,000 workers left for the UAE on work visas in Jan-July 2026, down from 52,000 in the same period of 2025 and 64,000 in 2024, suggesting the remittance engine itself may not accelerate indefinitely.

Key Takeaways

• Pakistan’s economy grew 3.7% in FY26, the fastest pace in four years, though short of the 4.2% target.
• The KSE-100 index closed the fiscal year at a record 180,301 points, up more than 43%, with active investors up nearly 50%.
• Workers’ remittances hit $3.63 billion in July 2026 alone, up 13% year-on-year, extending a run that has become the economy’s key external stabiliser.
• Economists continue to warn that heavy reliance on remittances over exports carries long-term Dutch disease risks.
• The government targets 4% growth and a narrower 3.6% fiscal deficit for FY27.

Frequently Asked Questions

How fast did Pakistan’s economy grow in FY26? Pakistan’s GDP grew 3.7% in fiscal year 2025-26, its fastest pace in four years, though below the government’s 4.2% target.

What record did the KSE-100 index set? The KSE-100 closed the fiscal year at a record 180,301 points, gaining more than 43% over the year, with the number of active exchange investors rising nearly 50% to over 583,000.

Why are economists concerned about Pakistan’s reliance on remittances? Remittances have outpaced merchandise exports in recent years, and when the remittance-to-GDP ratio rises too high, economists warn it can discourage industrial development — a pattern known as Dutch disease.