Pakistan’s GDP growth to remain at 3pc for 2025–26: World Bank

ISLAMABAD: The World Bank has forecast Pakistan’s GDP growth to hold steady at 3 per cent for the fiscal year 2025-26, with a slight uptick to 3.4 per cent in the following year, driven largely by a rebound in agricultural output and the recovery efforts following the devastating floods of 2025.

The World Bank’s latest Global Economic Prospects report highlighted that while economic activity in Pakistan is expected to stabilise, the country’s current account deficit could worsen in fiscal year 2026–27 due to higher import demand, increased growth momentum, and the normalization of remittance flows post-flood recovery.

In the same report, the Bank raised concerns about potential US tariff hikes, which could significantly impact exports, particularly in oil-importing countries like Pakistan and Tunisia. Economies with concentrated export markets would be more exposed to such trade disruptions.

REGULATORY REFORMS COULD BOOST PAKISTAN’S GROWTH

The World Bank also suggested that if Pakistan, like Morocco, implements more robust regulatory reforms to encourage private sector growth, it could lead to a reduction in informality, job creation, and a boost to overall economic growth. Additionally, a relaxation of import restrictions and the expansion of bank credit – partly due to more favorable financial conditions – has already begun to stimulate industrial activity in the country.

As oil-importing nations such as Pakistan, Morocco, and Tunisia see improved current account balances, partly due to rising remittances and increased tourism, inflation has generally cooled down. In Pakistan, this has led to multiple cuts in policy rates, though inflation-targeting remains a challenge in several economies.

GLOBAL ECONOMY FACES PERSISTENT CHALLENGES

On the global front, the World Bank’s report noted that the global economy is showing more resilience than expected, with global growth projected to remain steady in the short term, easing to 2.6 per cent in 2026 before edging up to 2.7 per cent in 2027. This revision is largely due to stronger-than-expected growth in the United States, which has driven much of the upward adjustment in the forecast.

However, the Bank cautioned that the 2020s are on track to be the weakest decade for global growth since the 1960s. The slow pace of recovery is widening the disparity in living standards, with advanced economies enjoying higher per capita incomes than in 2019, while about 25 per cent of developing countries are still below their 2019 income levels.

OUTLOOK FOR 2026 AND BEYOND

Looking ahead, global trade and domestic demand are expected to soften in 2026 after a strong surge in trade in 2025, which had been fueled by upcoming policy changes and rapid adjustments in global supply chains. Nonetheless, the easing of global financial conditions and fiscal expansion in several major economies are expected to help mitigate the slowdown.

Global inflation is projected to dip to 2.6 per cent in 2026, driven by softer labor markets and falling energy prices. Growth is anticipated to pick up again in 2027 as trade flows stabilize and policy uncertainty subsides.