World Bank forecast keeps Pakistan’s economic growth to 3%
in FY26
The World Bank (WB) has projected
Pakistan’s economy to grow by 3% in fiscal year 2026 (FY26), maintaining the
same pace as FY25, as the country continues to grapple with the economic
fallout from devastating floods that have hit key agricultural regions.
In its latest report, “Staying the Course for
Growth and Jobs,” the World Bank noted that Pakistan’s economy expanded by 3%
in FY25, up from 2.6% the previous year. However, it warned that the lingering
effects of recent floods would continue to weigh on growth, particularly
through their impact on the agriculture sector.
The report stated that while fiscal tightening
and prudent monetary policy helped anchor inflation and sustain current account
and primary fiscal surpluses, the floods had dampened earlier optimism. The
Bank’s April 2025 forecast had anticipated 3.1% growth, but this was later
revised downward due to severe flood-related disruptions.
Read More World
Bank acknowledges Pakistan’s improving economic stability
“Immediate and lingering impacts of the recent floods are expected to weigh on growth, with real GDP projected to remain at three per cent in FY26,” the report said. It added that the medium-term outlook remains positive, supported by continued macroeconomic stability and ongoing reforms.
According to Bolormaa
Amgaabazar, World Bank Country Director for Pakistan, the floods have
imposed “significant human and economic costs,” disrupting livelihoods,
damaging infrastructure, and slowing recovery.
“Staying the course on reforms and
accelerating job creation is critical to maintaining growth,” she said,
emphasizing the need to strengthen social safety nets and climate-resilient
infrastructure to protect vulnerable communities.
For FY27, the World Bank forecasts growth to
rise modestly to 3.4%, contingent on consistent reform momentum and
macroeconomic stability. However, it cautioned that growth will remain
constrained by tight fiscal conditions, global uncertainty, and vulnerability
to climate shocks.
Lead author Mukhtar Ul Hasan stressed that
sustaining progress requires a careful balance of revenue and expenditure
measures to manage flood recovery while advancing fiscal consolidation. He
called for the urgent implementation of priority reforms, including tax base
expansion, improved tax administration, and reducing the state’s footprint
through state-owned enterprise divestiture and public sector rationalization.
Read More World
Bank reaffirms $40 billion commitment to Pakistan under 10-year development
framework
On trade, the report noted a long-term decline in Pakistan’s export performance — falling from 16% of GDP in the 1990s to around 10% in 2024 — leaving growth dependent on debt and remittance-fueled consumption. The Bank cited high tariffs, cumbersome regulations, and costly logistics as key barriers to competitiveness, while welcoming recent tariff reforms as a “historic step toward openness.”
Co-author Anna Twum acknowledged government
efforts to place exports at the heart of its development agenda, including the
approval of the National Tariff Policy, but warned that further action is
needed.
“Tariff reforms alone will not suffice. Broader
measures are essential to ensure a market-determined exchange rate, enhance
trade finance, and expand access to export markets,” she said.
The report follows similar findings by the Asian
Development Bank (ADB) earlier this month, which maintained its 3% growth
forecast for Pakistan while revising inflation projections upward to 6%, citing
flood-related damage to agriculture and infrastructure.
Flood Impact
Record monsoon rains since late June —
intensified by dam releases from India — have inundated large parts of Punjab
and Sindh, causing billions of dollars in damage. According to the Provincial
Disaster Management Authority (PDMA), around 1.8 million acres of farmland have
been flooded, with up to 50% of rice and 60% of cotton and maize crops destroyed.
Read More Pakistan’s
economy could reach $1 trillion by 2035: World Bank
Analysts warn the impact could surpass that of the 2022 floods, which submerged a third of the country, as the current crisis affects both agricultural and industrial centers.
Despite
the challenges, the World Bank reaffirmed its confidence that with continued reforms,
fiscal discipline, and resilience-building, Pakistan can return to a
sustainable growth path in the coming years.
Source: Dawn