Pakistan’s economy is expected to grow by 2.6% in fiscal year 2025-26, according to the latest World Bank regional economic outlook for the Middle East, North Africa, Afghanistan & Pakistan (MENAAP). The report, released on Tuesday, outlines a cautious yet steady recovery path for the country as it grapples with the aftermath of recent floods, structural challenges, and evolving global economic dynamics.
According to the World Bank, Pakistan’s real GDP at factor cost grew by 2.7% in FY2024-25, slightly higher than the 2.5% growth recorded in FY2023-24. However, the upcoming fiscal year’s forecast indicates a modest deceleration due to agricultural setbacks, particularly in Punjab, where flood-related damages are expected to reduce agricultural output by at least 10%. This decline could have ripple effects on major crops such as rice, sugarcane, cotton, wheat, and maize — all critical to Pakistan’s food security and export portfolio.
Despite these short-term disruptions, the report projects that growth will accelerate to 3.4% in FY2026-27. This rebound is expected to be supported by improvements in agricultural productivity, a decline in inflation and interest rates, and stronger private consumption and investment. The World Bank emphasized that the success of these forecasts depends on continued macroeconomic stability, effective policy coordination, and resilience-building measures in climate-affected sectors.
One of the key highlights of the report is Pakistan’s five-year tariff reform plan (2025–2030), which aims to halve the country’s historically high import tariffs. The World Bank noted that these reforms could enhance Pakistan’s competitiveness, expand its export base, and improve its integration into regional and global value chains. Reduced trade barriers, if implemented effectively, are expected to foster industrial diversification and attract foreign direct investment in manufacturing and services.
On the inflation front, the report observed that price pressures eased significantly in FY2024-25, with inflation falling to single digits for the first time in several years. The decline was attributed to stable global energy prices and improved domestic food supply management. However, the World Bank cautioned that ongoing disruptions in food supply chains due to floods and infrastructure constraints could cause temporary inflationary spikes through 2027.
The report also examined social and demographic trends, noting that poverty at the lower-middle-income line declined by 9.4 percentage points between 2011 and 2018. However, progress has slowed since 2020 due to economic shocks, pandemic-related disruptions, and natural disasters. Pakistan continues to account for a substantial portion of the MENAAP region’s low-income population.
Interestingly, the World Bank highlighted Pakistan’s demographic potential as a key factor for long-term growth. The report stated that Pakistan maintains one of the highest fertility rates in the region but is expected to see a demographic transition within one generation. Encouraging greater female participation in the labor force, it added, could boost GDP per capita by 20–30%, underscoring the need for inclusive economic policies and gender-responsive labor reforms.
In a regional context, the MENAAP economies are projected to grow by 2.8% in 2025 and 3.3% in 2026. The World Bank warned that global uncertainty, trade disruptions, and regional conflicts remain key risks to sustained recovery. For Pakistan, the report suggests that structural reforms, resilience in agriculture, and trade liberalization will determine the pace of growth in the coming years.
While the outlook remains cautiously optimistic, the World Bank’s analysis reaffirms that Pakistan’s path to sustainable growth hinges on effective fiscal management, targeted social investments, and an accelerated shift toward economic diversification.
Follow the PakBanker Whatsapp Channel for updated across Pakistan’s banking ecosystem.