This paper points out that GDP growth is fundamentally on track although a little below the expected 7% target owing to commodity sector weaknesses. The rising trend in unemployment has been reversed over 2002-04. It is expected that longer trend growth over the decade will be over 6%. However, there are certain macroeconomic imbalances, the current account deficit, the widening savings-investment gap and inflationary pressures, that need to be managed. Pakistan’s economy continues to remain on a high-growth trajectory during the current fiscal year, though the real GDP growth rate for the year seems likely to be lower than the 7 percent target. The expectation of the slowdown, relative to the FY06 annual target, owes principally to the (estimated) weakness in the commodity producing sectors of the economy, the impact of which will be partially offset by an anticipated above-target performance of the services sector.