Islamabad (TDI): The World Bank has projected Pakistan’s GDP growth to remain at 3% for the fiscal year 2025-26 (FY26), citing the ongoing impact of recent floods and the challenges posed by macroeconomic instability.
The lender’s forecast comes as part of its “Pakistan Development Update: Staying the Course for Growth and Jobs” report.
The World Bank highlighted that while Pakistan’s economy grew by 3% in the fiscal year 2024-25, up from 2.6% in the previous year, the flood-induced damage has significantly dampened growth prospects for FY26. The floods, which caused widespread human suffering and extensive damage to agricultural and urban areas, continue to impact economic performance, particularly in the agriculture sector.
According to the report, real GDP growth is expected to pick up to 3.4% in FY27, contingent upon macroeconomic stability and the successful implementation of key economic reforms. However, the growth trajectory is anticipated to remain constrained due to tight fiscal policies aimed at rebuilding economic buffers in the face of global policy uncertainty and the vulnerability to climate shocks.
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While industrial activity and the services sector showed positive growth in FY24, the agriculture sector faced challenges, including adverse weather conditions and pest infestations. The World Bank noted that while inflation was contained through appropriate monetary policies, the impact of the floods posed serious risks to Pakistan’s macroeconomic stability. The floods have had a significant impact on livelihoods, agriculture, and urban infrastructure, putting additional strain on an already fragile economy.
The World Bank’s Country Director, Bolormaa Amgaabazar, emphasized that continuing reforms, accelerating job creation, and strengthening social safety nets are crucial for maintaining growth. She also highlighted the importance of infrastructure development to protect vulnerable populations and ensure long-term economic resilience.
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The World Bank report underscores the importance of a balanced fiscal approach to manage the economic fallout from the floods while maintaining fiscal consolidation. Mukhtar Ul Hasan, the lead author of the report, stressed the urgent need for fiscal reforms, including broadening the tax base, strengthening tax administration, and reducing state intervention in the economy through privatization of state-owned enterprises (SOEs).
The report also points to Pakistan’s declining exports, which now account for only 10% of GDP in 2024, compared to 16% in the 1990s. This decline has made Pakistan’s economic growth increasingly dependent on debt and remittance-driven consumption, leading to boom-bust cycles in the economy.
