From the brink to steady ground: Pakistan's quiet turnaround

Two years ago, the conversation around Pakistan's economy was dominated by one word: default. Today, that word has receded from the headlines. In its place sits a different vocabulary, words like surplus, listing, inflow and review. The change has not arrived overnight, and no honest observer would call the work finished, but the trajectory is real and the numbers tell a story that deserves attention.

Real GDP growth is now provisionally pegged at 3.70 per cent for FY27, up from 3.18 per cent the previous year, with the third quarter clocking in at 4 per cent. The economy has crossed the 452 billion dollar mark, taking per capita income to 1,901 dollars. Large-scale manufacturing, the bellwether for industrial momentum, grew at 6.5 per cent in the first nine months of FY26, with cement, fertilizer, petroleum and automobile demand all pulling their weight.

The fiscal picture has shifted in a way few would have predicted in early 2024. The fiscal deficit fell to 0.7 per cent of GDP in the first nine months of FY26, the first time in Pakistan's history that the country has recorded a number below one per cent over that window. The primary surplus is at its highest level on record at 3.2 per cent of GDP. The FBR tax-to-GDP ratio climbed to 10.3 per cent in FY25, up from 8.8 per cent the year before, and tax collection sits at 94 per cent of the FY26 target.

Perhaps the most quietly remarkable line item is the early payoff of debt. Pakistan retired 4 trillion rupees, around 14 billion dollars, of public debt ahead of schedule. That is a first in the country's history and the interest savings flow straight back into fiscal headroom. Public debt to GDP stood at 70 per cent in FY25, down from 75 per cent in FY23. Average maturity of the debt stock has lengthened from 2.5 years in FY24 to four years today, a structural shift that takes some of the rollover anxiety out of the system.

Inflation has cooled to 6.1 per cent for the nine months of FY26, against 4.7 per cent in the same period last year. The State Bank's policy rate has been brought down to 11.5 per cent from 22 per cent in June 2024, a halving that has not been allowed to destabilise the rupee or rattle the secondary markets. Foreign exchange reserves at the central bank crossed 16 billion dollars, a four-year high, with import cover at 2.6 months against 1.7 months a year ago.

Externally, the picture has steadied with three consecutive monthly current account surpluses in January, February and March 2026. The March surplus alone was 1.07 billion dollars. Pakistan returned to global capital markets after a four-year absence with a successfully placed 750 million dollar Eurobond, followed by a Panda Bond issuance described by market participants as the country's cheapest ever.

The skeptics will ask how durable this all is, and the honest answer is that durability depends on continuing the difficult, unglamorous work of reform. Tax base expansion, the privatization roadmap, the National Tariff Policy and the energy sector clean-up are all in execution rather than on paper. None of them is finished. But the difference between the present moment and the one Pakistanis lived through in early 2023 is not cosmetic. It is the difference between an economy fighting for breath and an economy that has started to plan again.

Foreign rating agencies have taken notice. Moody's, Fitch and S&P have all moved on Pakistan in the past year, citing fiscal consolidation and reform momentum. The IMF, World Bank and ADB have echoed the same theme in their own language. None of these endorsements substitute for the lived experience of Pakistanis paying their bills, but they do indicate that the country is once again being read as a workable proposition rather than a problem to be managed.

For a country that spent much of the last decade trapped between balance-of-payments crises and political turbulence, the present moment looks less like a finish line and more like a launchpad. The job of the coming budget, and the years that follow, will be to make sure the launch is sustained.

The writer is a development consultant in Islamabad.