Pakistan’s Output Rebound Confronts Rising Poverty and Climate Strain

Pakistan’s economy grows 3.7%, but rising poverty, weak agriculture, water stress and debt expose deeper structural challenges.

 Pakistan’s economy expanded by 3.7 percent in real terms in the fiscal year ending in June 2026, a rebound from 3.18 percent a year earlier and from a contraction of 0.2 percent in the fiscal year that ended in June 2023, according to provisional national accounts in the government’s annual economic survey. The figure sits close to an International Monetary Fund (IMF) projection of 3.6 percent for calendar 2026 and inside a flood-adjusted range of 3.5 to 3.9 percent that official climate analysis set against an earlier growth target of 4.2 percent. Output measured at current market prices rose to PKR 126,870 billion from PKR 114,039 billion, an increase of about 11.25 percent, while per capita income moved to $1,901 from $1,751. Those aggregates describe a recovery in the volume of goods and services produced after inflation is stripped out. As one explainer of the growth rate put it, “The economy growth rate measures how fast a country’s output is expanding, usually as the year-on-year change in real GDP.” The same account cautioned that “Positive GDP growth means output is rising, but it does not automatically mean higher household income, lower prices or a stronger currency.” That distinction frames the rest of the official record: activity has strengthened on several macroeconomic gauges even as poverty, inequality, crop stress, and climate damage have widened the gap between national accounts and household welfare.
Services again supplied the largest share of output, close to 58 percent of the economy and growing 4.09 percent, while industry expanded 3.51 percent and agriculture 2.89 percent. Large-scale manufacturing rose 6.5 percent in the July–March period from 2.0 percent a year earlier, with food and petroleum products among the stronger lines and sixteen of twenty-two industrial groups in positive territory. Small-scale manufacturing grew 8.5 percent. Mining and quarrying barely advanced, at 0.4 percent. Investment remained subdued relative to output, with the investment-to-GDP ratio at 14.38 percent compared with 14.42 percent the previous year; the national saving-to-GDP ratio slipped to 14.13 percent from 14.87 percent, and domestic saving stood at 7.03 percent of GDP. The composition of growth therefore leaned on consumption-facing services and a manufacturing rebound more than on a lift in capital formation.
Agriculture’s contribution tells a more strained story. The sector’s share of GDP eased to 23.44 percent from 23.62 percent. Livestock, which accounts for 62.45 percent of agricultural value added and 14.64 percent of GDP, grew 3.75 percent and carried most of the sector’s expansion. Crop growth was far weaker. Important crops rose only 0.65 percent, even as wheat output reached 29.61 million tonnes, sugarcane 89.45 million tonnes, and rice 9.99 million tonnes. Cotton production was 7.05 million bales and maize 8.79 million tonnes. Independent reading of the same survey figures notes that crop output overall grew about 1.44 percent and that cotton has fallen from roughly 13 to 14 million bales in the early 2010s to levels frequently below 7 million bales, leaving a large textile industry—responsible for about 60 percent of export earnings—dependent on imported fiber. National wheat yields of about 3.0 to 3.2 tonnes per hectare remain well below the 5 to 7 tonnes achieved in research trials and on progressive farms. Other crops grew 2.43 percent, with pulses and vegetables stronger than fruit.
The economics of cultivation have tightened around those production numbers. A 50-kilogram bag of urea that cost about PKR 1,700 a decade ago has been reported near PKR 4,500 to PKR 4,800; diammonium phosphate has moved from roughly PKR 3,500 a bag to more than PKR 13,000 to PKR 15,000 in recent seasons; diesel has risen from around PKR 100 a litre a decade ago to about PKR 380 a litre. Labour costs have more than doubled in many areas while harvest prices have often failed to keep pace, a pattern illustrated by growers who sold the 2024–25 wheat crop below the cost of production. Water is the tighter constraint still. Per capita availability that once exceeded 5,600 cubic metres a year has fallen below 900 cubic metres as population has grown from about 34 million at independence to more than 240 million in that longer historical comparison, and to an estimated 252.09 million in 2025 at a growth rate of 2.07 percent. Agriculture withdraws more than 90 percent of freshwater, yet irrigation efficiency remains below 45 percent, with 35 to 40 percent of water lost before it reaches fields. Groundwater tables are falling in intensively farmed districts, and the spread of solar tube wells has raised the risk of faster depletion even as it lowers energy costs.
Climate has already rewritten parts of the production ledger. The 2022 floods affected more than 33 million people and damaged over four million acres of crops. The 2025 floods produced estimated damages of PKR 822 billion, or about $2.9 billion, including PKR 430 billion in agriculture, of which PKR 422.6 billion was crop loss, and PKR 307 billion in infrastructure. Official climate analysis recorded more than 1,039 fatalities, displacement of more than 4 million people, and effects on about 6.5 million people across 70 districts, with 77 percent of those effects concentrated in Punjab. “These floods disruptions are also projected to have labor market implications, with unemployment expected to increase by approximately 0.2 million in FY 2026. Consequently, the floods have emerged as a significant downside risk to Pakistan’s macroeconomic outlook, with real GDP growth for FY 2026 revised downward to an estimated range of 3.5-3.9 percent compared to the initial target of 4.2 percent.”  The year 2025 was the second warmest in sixty-five years, with a national mean temperature of 23.9°C, or 1.09°C above the 1961–1990 average. Agriculture itself accounts for about 40 percent of national greenhouse-gas emissions. Pakistan contributes less than 1 percent of global emissions, with a historic share near 0.4 percent, while facing projected temperature increases of 3°C to 5°C by the end of the century and air quality in 2025 measured at 67.3 micrograms of PM2.5 per cubic metre, about thirteen times the World Health Organization guideline.
Those shocks sit behind the sharpest social finding in the survey. The national poverty rate, measured by the cost-of-basic-needs method, rose from 21.9 percent in 2018–19 to 28.9 percent in 2024–25 after a longer decline from 50.4 percent in 2005–06. Nearly 27 million more people fell below the line over six years, taking the poor population to around 70 million. Rural poverty moved from 28.2 percent to 36.2 percent and urban poverty from 11 percent to 17.4 percent. Provincial rates rose from 16.5 to 23.3 percent in Punjab, 24.5 to 32.6 percent in Sindh, 28.7 to 35.3 percent in Khyber Pakhtunkhwa, and 41.8 to 47 percent in Balochistan. The Gini coefficient increased from 28.4 to 32.7 over the same interval. The survey attributes the reversal to high inflation, currency depreciation, International Monetary Fund–linked stabilization, climate disasters including floods, and the fallout of conflict in West Asia. Some non-income indicators improved over that period, including school attendance, literacy, internet access, immunization, sanitation, and clean-fuel use, a reminder that consumption poverty and selected service outcomes have not moved in lockstep.
The labour market and human-capital figures add texture without resolving the tension. The labour force stood at 83.14 million in the 2024–25 labour-force survey, with 77.2 million employed and 5.90 million unemployed. Agriculture still employs nearly 37 percent of the workforce and supports livelihoods, directly or indirectly, for more than 100 million people. Literacy was 63.0 percent in the 2025 census—73.0 percent among men and 54.0 percent among women, 74.0 percent in urban areas and 55.0 percent in rural areas—with provincial rates of 68.0 percent in Punjab, 58.0 percent in Sindh and Khyber Pakhtunkhwa, and 49.0 percent in Balochistan. The share of children out of school fell from 38 percent in 2023 to 28 percent in 2025. Education spending by federal and provincial governments was PKR 962.0 billion in fiscal 2025, or 0.8 percent of GDP; public health spending was PKR 942.2 billion, also 0.8 percent of GDP. Pro-poor expenditure reached PKR 4.66 trillion in July–March of fiscal 2026, and the Benazir Income Support Programme’s allocation for the year was PKR 722.49 billion, with PKR 540.27 billion released in the first nine months.
Fiscal accounts are the survey’s most assertive claim of stabilization. The deficit for July–March of fiscal 2026 was PKR 856.4 billion, or 0.7 percent of GDP, compared with 2.6 percent in the same period a year earlier. Official language called this “one of the lowest fiscal deficits recorded during the first nine months of a fiscal year.”  A primary surplus of PKR 4,091.5 billion, or 3.2 percent of GDP, compared with 3.0 percent a year earlier. Total expenditure fell 4.2 percent to PKR 15,655.6 billion, helped by a 23.2 percent drop in markup payments to PKR 4,947.9 billion, while development spending and net lending rose 18.7 percent. Revenues increased 10.7 percent to PKR 14,799.3 billion, with tax receipts up 11.3 percent and Federal Board of Revenue collections up 10.1 percent. Provincial tax receipts rose 25.8 percent, and provincial surpluses reached PKR 1,636.1 billion. The survey described overall fiscal performance as remaining encouraging, supported by expenditure control, revenue mobilisation, provincial surpluses, and ongoing fiscal reforms. Against that consolidation sits a tax-expenditure estimate of PKR 2,353 billion for fiscal 2025, including PKR 1,273.98 billion in sales-tax relief, PKR 579.7 billion in income-tax expenditure, and PKR 499.14 billion in customs concessions—revenue not collected on a scale that remains large relative to the tax take.
Public debt at the end of March 2026 was PKR 83,285 billion, or 70.7 percent of GDP, after growing 3.4 percent in the first nine months, slower than 6.7 percent a year earlier. Domestic debt was PKR 57,566 billion and external public debt $92.2 billion, about 31 percent of the total. The debt-to-GDP ratio had been 67.8 percent at end-June 2025 and 75.2 percent at end-June 2024. Multilateral creditors held 46 percent of external debt. External disbursements in the first nine months totaled $6.1 billion, including $2.7 billion from multilateral sources and a $1.2 billion tranche under the IMF Extended Fund Facility. Markup outlays declined even as the stock remained large, and the average maturity of domestic debt edged up to 3.86 years.
Prices have been less settled than the fiscal ratios. Average consumer-price inflation was 6.19 to 6.2 percent in July–April of fiscal 2026, against 4.73 to 4.7 percent a year earlier; another official compilation for July–May put the average at 6.7 percent. Year-on-year inflation reached 10.89 percent in April 2026, compared with 0.28 percent in April 2025. The survey said price stability was broadly preserved despite the Gulf conflict and its effect on energy prices, while also recording that non-food items, especially energy, drove much of the later increase. Core inflation excluding food and energy was described as relatively contained, even as urban core stood near 7.2 percent over July–April and rural core near 8.2 percent. Wholesale prices rose 2.3 percent over the same span. The contrast with the inflation that accompanied the earlier poverty increase is real, but the spring rebound in headline prices reopened a familiar household pressure.
External accounts improved on some lines and widened on others, and the compilations do not match in every window. Official highlights record a current-account surplus of $72 million in July–March, down from a $1.7 billion surplus a year earlier; another reading of the survey for July–April shows a current-account deficit of $252 million. Goods trade is likewise reported at different magnitudes for overlapping periods, with one official presentation putting the merchandise deficit at $27.9 billion in July–March as imports rose 6.9 percent, and another putting the July–March trade deficit at $23.53 billion. Remittances were $30.3 billion, up 8.2 percent. Information-technology exports reached $3.38 billion, up 19.7 percent, with a related surplus near $2.9 billion. Foreign-exchange reserves were $22.6 billion, of which the central bank held $17.1 billion. The average exchange rate over July–March was PKR 281.1 per dollar. The current-account and trade figures therefore support a narrative of partial external adjustment rather than a single settled surplus or deficit.
Policy responses recorded in the survey try to span the fiscal, social, and climate files at once. A Climate Prosperity Plan is described as an investment framework whose implied financing need reaches $1.6 trillion by 2050. Nationally determined contributions seek to cut projected emissions by up to 50 percent by 2035, 17 percent without external finance and 33 percent with it, at an investment need of $565.7 billion. A green taxonomy has been issued, a carbon levy on petroleum introduced, and an electric-vehicle policy framework adopted under an IMF Resilience and Sustainability Facility. A monsoon plan for 2026 is framed as anticipatory flood management. Youth-loan and skills schemes, overseas-worker registrations of 762,499 in 2025, and expanded cash-transfer disbursements sit beside education and health budgets that remain below 1 percent of GDP each. None of those instruments, on the survey’s own numbers, has yet reversed the six-year rise in consumption poverty or the stagnation in major field crops.
The official record therefore presents two economies that occupy the same year. One is an accounts economy in which real output grew 3.7 percent, the first-nine-month fiscal deficit narrowed to 0.7 percent of GDP, the primary surplus reached 3.2 percent, manufacturing regained pace, remittances and information-technology exports rose, and debt accumulation slowed. The other is a household and resource economy in which poverty approached 29 percent, inequality widened, cotton and several other crops remained under pressure, water availability stayed below the scarcity threshold, and a single flood season erased billions of rupees of crops and infrastructure while shaving the growth target. The survey itself documents both pictures. What remains in motion is whether the fiscal consolidation and modest expansion in measured output can be converted into broader gains in real incomes and climate-resilient production, a test that the same document leaves open rather than resolved.

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