By Moaaz Manzoor
Pakistan’s economy showed encouraging signs in the first quarter of FY2026, with inflation kept in check, enough liquidity in the system, and the Pakistan Stock Exchange (PSX) reaching record levels — a clear signal that investors are regaining faith in the country’s financial management.
The Pakistan economy FY2026 reflects cautious optimism, backed by improved investor confidence and stable market indicators.
Pakistan’s Money Supply and Asset Trends
According to the Finance Division’s Monthly Economic Update & Outlook for October 2025, the country’s money supply (M2) shrank by 2.6 percent from July 1 to October 3, 2025, compared to a smaller drop of 1.9 percent in the same period last year.
The contraction happened mainly because of a sharp fall in net domestic assets (NDA), which declined by Rs1.245 trillion. However, this was partly balanced by a rise of Rs173.8 billion in net foreign assets (NFA).
Government Borrowing Declines Sharply
This reporter learned that the government’s borrowing for budgetary support dropped sharply, with Rs2.04 trillion paid back compared to Rs1.28 trillion last year. This move released more liquidity for private businesses and eased the pressure on banks, allowing them to lend more freely.
Private-Sector Credit Expansion Shows Business Confidence
Private-sector borrowing grew steadily, especially in manufacturing, telecommunications, and energy. Economists believe this steady growth shows that business confidence is returning after a long period of strict monetary policies.
PSX Reaches Historic Heights in 2025
On the capital market front, Pakistan saw impressive results. In September, the PSX jumped by 16,875 points, closing at 165,493. The total market capitalization increased by Rs1.6 trillion, reaching Rs19.2 trillion. By October 22, the KSE-100 Index hit 166,553 points — the highest in Pakistan’s history.
“The strong performance of the stock market reflects improving investor confidence after the country achieved macroeconomic stability and successfully completed the IMF review,” the Finance Division noted.
Stable Inflation, Strong Reserves, and Economic Outlook
It further explained that stable inflation expectations, disciplined fiscal management, and a balanced external position had all played a part in lifting investor morale. The rupee also stayed largely stable against the U.S. dollar, while foreign exchange reserves climbed to $14.5 billion by mid-October.
Experts pointed out that the mix of stable prices, falling yields, and positive stock market performance shows investors’ trust in the country’s financial direction. One market analyst told this reporter, “Markets are reacting positively because there’s now more clarity and discipline in both fiscal and monetary policy.”
The Finance Division stated that the country’s monetary policy continues to focus on keeping prices stable while encouraging economic growth. The State Bank’s real policy rate remains positive, helping to control inflation while leaving enough space for economic recovery.
Looking ahead, the report predicted that steady interest and exchange rates would help strengthen the financial system further. “A careful and steady monetary policy will continue to serve as the backbone of Pakistan’s economic stability,” it said.
Author Profile
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Moaaz Manzoor is a business correspondent who meticulously tracks Pakistan’s crucial but neglected natural resource industries.
He specializes in exposing inefficiencies and charting the course of modernization, highlighting how efforts to mechanize mining have dramatically cut marble and granite wastage, driving a recovery and attracting vital investment.
