- WB says real growth to be supported by recovering private consumption.
- Investment driven by tame inflation, lower interest rates to boost growth.
- Report says economic growth remained weak in the first half of FY2025.
Pakistan’s economy is stabilising and projected to grow by 2.7% in the fiscal year ending June 2025 — up from 2.5% last year and slightly above the International Monetary Fund’s (IMF) 2.6% outlook, the World Bank said Wednesday.
According to the World Bank’s latest Pakistan Development Update: Reimagining a Digital Pakistan, real GDP growth will be supported by recovering private consumption and investment driven by subdued inflation, lower interest rates, and recovering business confidence.
The South Asian country’s economy is stabilising with easing inflation, improving financial conditions, and current account and primary fiscal surpluses.
Amid continued tight macroeconomic policy, economic growth has been weak during the first half of the fiscal year. Agriculture saw limited growth, in part due to adverse weather and pest infestations.
Industrial activity declined, impacted by higher input costs and taxes, and reduced government spending. Similarly, the growth of the services sector was muted, given limited spillovers from weak agriculture and industrial activity.
While expected to strengthen, economic growth will remain tepid, making job creation and poverty reduction amid high population growth challenging.
“Pakistan’s key challenge is to transform recent gains from stabilisation into economic growth that is sustainable and adequate for poverty reduction,” said Najy Benhassine, World Bank Country Director for Pakistan.
“High-impact reforms to prioritise an efficient and progressive tax system, support a market-determined exchange rate, reduce import tariffs to boost exports, improve the business environment and streamline the public sector would signal strong reform commitment, build confidence, and attract investment.”
Based on continued macroeconomic stabilisation and key economic reforms, real GDP growth is projected to strengthen to 3.1% in FY26 and 3.4% in FY27 but will likely remain constrained amid tight monetary and fiscal policies aimed at rebuilding buffers and containing risks of imbalances. In addition, significant downside risks persist.
“Pakistan’s economy has turned the corner and stabilised. Yet, the economic outlook remains fragile, and any implementation delays in structural reforms or shifts in economic stabilisation could dampen the nascent recovery and intensify external pressures,” said Anna Twum, lead author of the report.
“Risks remain high due to elevated debt levels, policy and global trade uncertainties, and exposure to climatic shocks.”
This edition of the Pakistan Development Update also underscores the need for structural reforms to unlock opportunities for private capital mobilisation for improving Pakistan’s digital infrastructure and enabling environment for the digital economy.
Connectivity quality varies widely across provinces, while high costs make fixed broadband less accessible. Also, Pakistan has opportunities to improve its capability to digitally deliver services to its citizens and businesses through the ongoing development of its Digital Public Infrastructure (DPI).
However, the dividends from the DPI depend on several regulatory and institutional enablers and require ownership by the leadership and a strong coordination framework among the federal, provincial and local governments.
“Closing the digital divide and expanding access to digital services require targeted legal and regulatory reforms, increased private investment, and the development of key digital infrastructure. Strengthening secure digital identification systems, enhancing digital payment platforms, and improving coordination between federal and provincial authorities are crucial in building an inclusive and efficient digital ecosystem,” said Shahbaz Khan, co-author of the report.
IMF slashes growth forecast
Meanwhile, the International Monetary Fund (IMF) downgraded Pakistan’s economic growth projection for the current fiscal year from 3% to 2.6% in its World Economic Outlook report released this week.
The revised forecast follows US President Donald Trump’s fresh tariff hikes of up to 29%, which have led the IMF to cut growth estimates for several developing economies.
The report, however, noted that Pakistan’s GDP growth for the next fiscal year (2025–26) is projected to rise to 3.6%.
Inflation in Pakistan, which stood at 23.4% in 2024, is forecast at 5.1% for the current fiscal year, with the IMF projecting it to rise further to 7.7% in the next fiscal year.
The IMF also revised its forecast for Pakistan’s current account deficit. It now expects the deficit to stand at 0.1% of GDP, compared to its earlier estimate of 1%. In nominal terms, the current account gap is expected to be just $400 million, instead of the previously projected $3.7 billion.
For 2026, the lender expects the current account deficit to further increase to 0.4% of the GDP.
The unemployment rate is projected to remain at 8% in 2025, down from 8.3% in 2024, with a further expected decrease to 7.5% in 2026, according to the report.
The IMF’s World Economic Outlook highlighted that the recent tariff escalation by the US has led to a general weakening of growth forecasts across emerging markets and developing economies.
