Islamabad, October 28, 2025: The World Bank has projected Pakistan’s real GDP growth to remain at 3% in fiscal year 2025–26 (FY26), citing the lingering effects of recent floods, tight fiscal policies, and continued macroeconomic challenges.
In its latest report, “Pakistan Development Update: Staying the Course for Growth and Jobs,” the global lender said that growth is expected to improve modestly to 3.4% in FY27, provided the government sustains macroeconomic stability and pursues key structural reforms. However, it warned that growth will remain constrained amid “tight fiscal policies aimed at rebuilding buffers, continuing global policy uncertainty, and vulnerability to natural disasters and climate shocks.”
The report noted that Pakistan’s economy expanded by 3% in FY25, up from 2.6% in the previous year, reflecting a rebound in industrial activity and services sector expansion. It credited “tight and appropriate monetary policy” for anchoring inflation and supporting current account and primary fiscal surpluses despite a challenging global and domestic environment.
“Improved confidence supported industry and service sector growth, even as agriculture underperformed due to adverse weather and pest infestations,” the report said. “While favourable, the economic outlook has been tempered by recent floods, which have caused significant human and economic losses, damaging urban areas and agricultural land.”
World Bank Country Director Bolormaa Amgaabazar warned that the recent floods had dampened growth prospects and added pressure on macroeconomic stability. “Staying the course on reforms and accelerating job creation is critical to maintaining growth,” she said. “At the same time, strengthening social safety nets and infrastructure that protect the most vulnerable citizens will help ensure sustainable development and resilience.”
Report lead author Mukhtar Ul Hasan stressed that sustaining progress will require a balanced approach combining revenue and expenditure measures to manage the fiscal impact of floods while maintaining momentum toward fiscal consolidation.
“Urgent implementation of priority fiscal reforms is essential — including broadening the tax base, strengthening tax administration, and reducing the state’s footprint in the economy through divestiture of state-owned enterprises and rationalisation of the public sector,” Hasan said.
The report also underscored the critical role of exports in ensuring long-term growth and macroeconomic stability. It highlighted a sharp decline in Pakistan’s exports — from 16% of GDP in the 1990s to around 10% in 2024 — leaving the economy dependent on debt and remittance-driven consumption, a key driver of the country’s recurrent boom-bust cycles.
It identified high tariffs, complex regulations, and costly energy and logistics as major constraints, while acknowledging that recent tariff reforms marked a “historic step toward greater openness.” The World Bank urged Pakistan to adopt broader measures such as a market-determined exchange rate, improved trade finance, enhanced logistics, deeper trade agreements, and expanded digital and energy infrastructure to support export-led growth — particularly in emerging IT services.
Co-author Anna Twum noted that the government has placed export growth at the centre of its economic strategy and made progress in addressing policy and structural bottlenecks, most recently through the approval of the National Tariff Policy, which aims to lower costs for critical imported inputs.
However, Twum cautioned that “tariff reforms alone will not suffice” and must be complemented by broader steps to ensure exchange rate flexibility, strengthen trade finance, enhance trade facilitation, and expand access to international markets.
