Pakistan’s economic recovery is expected to continue into 2025, with the United Nations projecting a modest GDP growth rate of 3.4% for the year. This follows the economic downturn experienced in 2022-2023, with the country’s economy set to expand at a gradual pace in the coming years. The UN’s World Economic Situation and Prospects report, released on Thursday, reflects this optimistic outlook, while also pointing to the challenges that remain in the path to recovery.
The report highlights that despite the economic troubles faced in recent years, Pakistan’s GDP is set to increase by 3.4% in 2025. The country’s economy is expected to build on this momentum, reaching a growth rate of 4.2% by 2026. The UN states that the economic recovery in South Asia, including Pakistan, is being driven by the resilience of regional economies, particularly India, and a recovery in smaller nations like Bhutan, Nepal, and Sri Lanka.
However, while the forecast remains positive, the report also cautions that the outlook is not without risks. Geopolitical tensions, external demand slowdowns, ongoing debt challenges, and social unrest are all factors that could impede economic growth. Additionally, the region, including Pakistan, remains highly vulnerable to climate hazards, with extreme weather events posing a significant risk to economic stability.
The UN’s projection for Pakistan is in line with the broader regional trend. South Asia’s GDP is anticipated to grow by 5.7% in 2025 and 6% in 2026, driven by the strong economic recovery in India. Despite this, the report emphasizes that risks to this outlook are tilted to the downside due to the aforementioned factors.
Regarding inflation, the report forecasts that Pakistan will face continued inflationary pressures, with the rate expected to remain in double digits at 10.1% for 2025. This represents a slight decrease from the high inflation levels of 2023 but still reflects a challenging environment for consumers. Inflation is expected to ease somewhat in 2026, with a projected rate of 8.3%.
The broader South Asian region is also grappling with inflation, but the report anticipates that the average consumer price inflation for the region will decline from an estimated 9.9% in 2024 to 8.3% in 2025 and 7.2% by 2026.
The UN report also delves into Pakistan’s ongoing engagement with the International Monetary Fund (IMF). In September 2024, the IMF approved a new, larger programme for Pakistan under its Extended Fund Facility. This initiative is designed to help Pakistan address structural challenges, restore economic stability, and foster sustainable growth. Key priorities under this programme include reforming state-owned enterprises, advancing competitiveness, and building resilience to climate change.
Despite the challenges, the UN report notes that easing inflationary pressures in the region have allowed most central banks, including the State Bank of Pakistan (SBP), to halt monetary tightening or reduce policy rates in 2024. However, rising interest payments due to increased debt levels and low government revenues remain a significant concern for Pakistan and other nations facing similar fiscal pressures.
As Pakistan moves into 2025, the combination of modest economic growth and persistent inflationary pressures will continue to shape the country’s financial landscape. The UN’s projections suggest a challenging yet cautiously optimistic outlook as Pakistan navigates these complex economic realities.