Karachi: The KSE-100 Index experienced a 6.7% recovery in May 2026, reaching 173,000 points, as it managed to reduce the year-to-date losses to less than 1%. Despite the gains, trading volumes remained weak, influenced by geopolitical uncertainty and a reduced number of trading days. Similar volatility was observed across Asian markets, although countries like South Korea, Taiwan, Pakistan, and Thailand saw positive closures, driven by a rally in the IT sector and optimism linked to US-Iran peace discussions.
According to JS Global, foreign portfolio investors registered net selling amounting to approximately $670 million during the first eleven months of the fiscal year 2026, compared to a net outflow of $305 million in the previous fiscal year. Additionally, global economic organizations, including the IMF, World Bank, WTO, and IEA, have expressed concerns over the rapid depletion of global oil reserves due to ongoing conflicts, which are impacting energy supplies and economic activities worldwide.
Pakistan's current account returned to a deficit of $324 million in April 2026, following a surplus in March, bringing the cumulative balance for the first ten months of the fiscal year to a deficit of $252 million. The trade deficit also widened amidst weak export momentum, while the country's oil and mineral fuel import bill surged to a 44-month high of $1.9 billion.
The IMF disbursed a fourth tranche of $1.3 billion to Pakistan, raising the nation's foreign exchange reserves to $17.2 billion. The IMF has adjusted its GDP growth forecast for fiscal year 2026 upward to 3.6%, while revising the CPI inflation projection to 7.2%. The fiscal deficit estimate has been lowered to 3.2% of GDP.
Looking ahead, market sentiment is expected to depend on economic reforms and developments in international peace negotiations. The upcoming FY27 Budget is anticipated to focus on tax base expansion and maintaining reform momentum, with limited scope for broad tax relief. However, targeted measures such as income tax reductions for salaried individuals and incentives for local production of new energy vehicles may be considered.