💱 THE RUPEE RATE

For every £1,000 you send home this week, your family receives approximately Rs 376,000. Rates checked 15 August 2026

📈 KSE-100 THIS WEEK

The KSE-100 closed at 181,430 on Friday 7 August and has traded broadly sideways this week as markets observe Independence Day holidays. The negative sentiment midweek was primarily driven by the rebound in international oil prices, prompting investors to book profits ahead of the weekend. The index remains approximately 30% above where it was a year ago and less than 6% from its all-time high of 191,032. The fiscal deficit data released this week - the best in 22 years - is the kind of structural confirmation that gives institutional investors confidence to hold and add to Pakistani positions.

Pakistan just posted its lowest budget deficit in 22 years. On Independence Day. Here is why this number matters more than any other single figure in the economy.

What happened

Pakistan closed fiscal year 2026 with its strongest fiscal performance in more than two decades, reporting a deficit of 2.6% of GDP - the lowest level in 22 years - according to provisional data released by the Ministry of Finance. The fiscal deficit narrowed to Rs3.31 trillion in FY26, a significant improvement from Rs6.17 trillion or 5.4% of GDP in FY25. The country also achieved a primary surplus of Rs3.63 trillion, equivalent to 2.9% of GDP - the highest primary surplus in at least 26 years - surpassing the IMF target of 2.5% for the fiscal year.

The numbers behind the headline are equally striking. Government revenues rose to Rs19.8 trillion in FY26, including Rs14.2 trillion in tax revenues. Total government expenditure declined to Rs23.09 trillion from Rs24.17 trillion. Interest expenses dropped from approximately Rs8.9 trillion to Rs6.9 trillion - a nearly Rs2 trillion reduction in a single year. The average yield on Treasury bills during FY26 was 11.03%, compared to 13.63% in FY25. Debt growth slowed to 7.7% in FY26, its lowest pace in 20 years. Pakistan's debt-to-GDP ratio declined to around 68%.

Why it matters

To understand the significance of 2.6%, you need to see where Pakistan has come from. The fiscal deficit stood at 7.9% of GDP in FY22 - the highest since 2001. It was 7.8% in FY23, 6.8% in FY24, 5.4% in FY25, and now 2.6% in FY26. In just three years, the fiscal deficit has improved by 5.2 percentage points of GDP, while the primary balance has swung by 3.9 percentage points - from a 1.0% deficit to a record 2.9% surplus.

This is not an accounting trick. The three drivers of the improvement are real and structural. First, revenues: interest payments fell from around 61% of total revenues in FY24 to 35% in FY26 - materially improving fiscal capacity. When the government was spending 61 cents of every revenue rupee just on interest, there was nothing left for schools, hospitals, roads, or development. At 35%, there is meaningful fiscal space for the first time in years. Second, expenditure discipline: total spending actually fell year-on-year, which almost never happens in Pakistan. Third, debt management: the government financed the remaining fiscal gap through Rs2.14 trillion in domestic financing and Rs1.18 trillion from external sources - a dramatically smaller borrowing requirement than in previous years.

Finance Minister's Adviser Khurram Schehzad described it as a "decisive shift from recurring fiscal stress toward discipline, stability and sustainable growth." That framing is accurate. This is the structural fiscal story that underpins everything else - the S&P upgrade, the SBP's confidence about rate cuts, the rupee stability, the KSE-100's recovery.

What it means for you

Lower fiscal deficits mean three things for expat readers directly. First, the government needs to borrow less - which means lower interest rates over time, which means cheaper mortgages and business loans for your family in Pakistan. Second, less borrowing pressure means the SBP has more room to cut rates without triggering inflation, which improves returns on PKR instruments and boosts the stock market. Third, a debt-to-GDP ratio falling to 68% - still high but declining - means Pakistan's long-term creditworthiness is improving, which supports the rupee.

The IMF programme expires in 2027. For the first time in years, there is a credible conversation about Pakistan not needing a 26th IMF programme immediately after the 25th ends. The fiscal data released this Independence Day is the evidence that conversation can happen.

Pakistan's exports surged 31% in a single month in July. Here is what is driving it - and whether it can last.

What happened

Pakistan's trade deficit narrowed by 15.22% month-on-month to $3.95 billion in July 2026, compared to $4.66 billion in June 2026, as exports recorded a sharp recovery during the month. Exports in July 2026 rose to $2.94 billion, registering a 31.09% month-on-month increase compared to $2.24 billion in June 2026. Imports declined slightly to $6.89 billion, down 0.17% month-on-month from $6.90 billion in June. Pakistan's exports made a strong start to the first month of fiscal year 2026-27.

Why it matters

A 31% month-on-month surge in exports is an exceptional number. Finance Minister's Adviser Khurram Schehzad said the July performance shows the positive impact of the government's export promotion policies and marks a strong start to fiscal year 2026-27, adding that the trade deficit narrowing indicates improving momentum in the external sector.

The drivers of the surge are multiple. Textile and garment orders, which had been suppressed during the height of the Middle East conflict as shipping disruptions raised freight costs and delayed deliveries, are now flowing through normally as Hormuz has reopened. The Pakistan-Iran Transit Corridor, operational since April, is beginning to add meaningful export volumes to Central Asia. And the budget's income tax cuts and lower cost of doing business measures - taking effect from July 1 - are improving Pakistani exporters' competitiveness margins.

The year-on-year comparison, however, is less flattering. On a year-on-year basis, the trade deficit expanded by 25.17% from $3.15 billion recorded in July 2025, continuing to keep pressure on the external account. This context matters. The monthly improvement is real and welcome - but Pakistan's structural trade gap, where imports significantly exceed exports, has not been resolved. The government's target of $100 billion in exports by 2035 requires sustained annual growth of around 10%. One strong month of 31% is a positive data point, not a structural solution.

The EU GSP+ situation - which we covered in Issue #13 - remains a risk. Pakistan's textile mills are caught in a contradiction: the brands they supply in Europe are under pressure from the EU's human rights monitoring, even as textile export volumes are recovering. Resolving that contradiction before the 2027 GSP+ review is one of the most important economic tasks the government faces

What it means for you

Stronger exports mean more dollars coming into Pakistan, which means stronger reserve support for the rupee. The July trade deficit of $3.95 billion is still large - Pakistan imports nearly twice what it exports - but the direction of travel is improving. For anyone monitoring the rupee's medium-term trajectory, export performance is the variable to watch alongside remittances. The $41.6 billion in annual remittances is the stock providing stability. Export growth is the flow that determines whether Pakistan can sustainably reduce its dependence on remittances and IMF financing over the next five years.

55% - the share of renewables in Pakistan's electricity mix, confirmed this week by Energy Minister Leghari. Five years ago that number was under 10%. Pakistan now generates more than half its electricity from wind, solar, and hydropower - a transformation that has happened faster than almost anyone predicted. The implication for electricity bills is significant: as renewable capacity grows and the marginal cost of power generation falls, the structural pressure on electricity prices from fuel costs - the same fuel cost adjustment that pushed bills up in August - diminishes. Pakistan's solar story is entering a new phase, with net metering subscribers growing rapidly. If the government manages the grid transition well, electricity costs could fall meaningfully over the next two to three years.

⚡ THE QUICK THREE

🏠 EXPAT CORNER - This week’s practical tip

Pakistan at 79. Here is the honest economic scorecard - where things stand and what still needs to change.

Today Pakistan marks 79 years of independence. Rather than a political commentary, here is an honest financial and economic scorecard - the kind that The Daily Rupee exists to provide.

What has genuinely improved in the past three years:

Foreign exchange reserves have grown from $3 billion to $25.3 billion. The fiscal deficit has fallen from 7.9% of GDP to 2.6% - a 22-year low. Remittances have grown from $31 billion to $41.6 billion annually. The S&P credit rating has gone from CCC+ to B - two full notches of improvement. The KSE-100 has risen over 40% in a year. Inflation, which peaked at over 38% in 2023, has fallen to 9.2% and is heading lower. Pakistan brokered a peace deal between the US and Iran and is now a formal defence partner of Saudi Arabia and Turkey. The IT sector has grown from under $1 billion in annual exports to nearly $4 billion. Renewables now power 55% of the electricity grid.

What has not yet changed and genuinely needs to:

Pakistan's tax-to-GDP ratio remains among the lowest in the world at around 10%. Over 44% of the population lives below the poverty line. Unemployment has risen to 7.1% even as the economy grows - growth that is not creating enough jobs. Exports remain at $40-41 billion annually against a $100 billion target for 2035 - the gap is enormous. The EU GSP+ relationship is under threat. Agricultural productivity has stagnated. Water stress is intensifying. And Pakistan remains on its 25th IMF programme in 77 years of independence.

The honest summary: the macro stabilisation of the past three years is real and significant. The structural transformation that would make that stabilisation permanent - a broader tax base, a manufacturing export surge, lower poverty, more jobs - has not yet happened. The next three years will determine whether FY26's historic fiscal performance was the beginning of something durable or another peak before another crisis.

For your financial decisions: the improved macro picture is real enough to act on. The remaining structural challenges are real enough to plan for. Keep your powder dry, diversify across currencies, and send money home through official channels. Pakistan's economy needs the diaspora for the next chapter just as much as it did for this one.

جشن آزادی مبارک - Happy Independence Day to all our readers and your families in Pakistan.

Next issue: we cover the first SBP rate data of FY27 and the August inflation reading. Hit reply - what do you most want covered in the next issue?