WB says Pakistan incomes could triple by 2050; IMF sees regional contraction

ISLAMABAD: Pakistan’s per capita income could triple by 2050 if the country accelerates structural reforms to encourage private investment, strengthen institutions and improve productivity, the World Bank said on Thursday, while warning that average per capita growth remains sluggish despite progress in macroeconomic stabilisation.

In its latest Pakistan Development Update, titled “Attaining Escape Velocity”, the World Bank said sustained economic growth of 6.2 to 6.9 per cent annually could enable Pakistan to reach Vietnam’s current income level by 2050, provided it upgrades policies and institutions to the standards of an average middle-income country.

The report said that Pakistan’s real gross domestic product (GDP) growth increased to 3.7 per cent in fiscal year 2026, up from 3.2 per cent in FY2025.

It said that revenue growth and expenditure restraint helped produce a record primary fiscal surplus of 2.9 per cent of GDP, while strong remittances supported the rebuilding of foreign exchange reserves.

The improvements also contributed to credit rating upgrades by S&P and Moody’s and enabled Pakistan to return to international debt markets with a $3 billion Eurobond issuance, the World Bank said.

However, real per capita growth — the rate at which the income of the average Pakistani increases — remains around 1.6 per cent, highlighting the need for deeper structural reforms.

“Pakistan has made real progress in restoring stability, and markets have taken notice,” said Bolormaa Amgaabazar, the World Bank’s country director for Pakistan.

“But real per capita growth — the rate at which the income of the average Pakistani increases — remains stuck at around 1.6 per cent. Reforms to drive faster growth are now urgently needed.”

The report said that structural reforms to encourage private investment were necessary to translate macroeconomic stability into higher living standards, particularly as fiscal resources and foreign exchange remained constrained.

It called for improvements to the business environment, tax system and access to finance, alongside a reduction in the state’s role in the economy.

Some reforms are already under way, including timely power tariff adjustments that helped reduce energy subsidies from 1.1 per cent of GDP in FY2025 to 0.8 per cent in FY2026, continued trade liberalisation under the National Tariff Policy and the recent privatisation of Pakistan International Airlines.

Sebastian Essl, the report’s lead author, said sustained, private-sector-led growth would require a coordinated plan and committed implementation of reforms.

The World Bank said the reforms could help Pakistan achieve by 2050 the per capita income levels of countries currently classified at the upper-middle-income threshold.

IMF warns of regional contraction

In a separate assessment, the International Monetary Fund (IMF) forecast that economic output across the Middle East, North Africa and Pakistan would contract by 1.3 per cent in 2026, citing the impact of the US-Israeli-led war against Iran on energy production, shipping, tourism, trade and investor confidence.

The regional economy is expected to rebound with growth of 6.6 per cent in 2027, although output in affected economies would generally remain below levels projected before the war, the IMF said in its regional outlook released in Dubai on Thursday.

The impact has been uneven, with oil-exporting economies facing greater pressure from disruptions to energy production and shipping, while oil-importing countries have proved more resilient.

The IMF’s baseline forecast assumes the conflict will ease in early 2027 and trade will gradually normalise during the year. However, it warned that the outlook remained subject to exceptionally high uncertainty.

“Further disruption to energy production and trade routes” could push energy prices higher, the IMF said, adding that tighter external financial conditions could also weigh on the outlook.

It also cautioned that investors reassessing artificial intelligence-driven productivity gains, rising interest rates, inflation concerns and fiscal pressures could further tighten financial conditions.

Oil-importing economies have received support from domestic demand, remittances, tourism flows, favourable financial conditions and policy measures to shield consumers from higher commodity prices, the fund said.

Elsewhere, growth in the Caucasus and Central Asia is expected to moderate to a more sustainable pace, with output projected to expand by 5.2 per cent in 2026 and 5 per cent in 2027.

The IMF urged policymakers to maintain price stability, preserve fiscal sustainability, safeguard central bank independence and pursue structural reforms to improve productivity and create jobs.