Pakistan’s economy is expected to register a ‘modest expansion’ with growth projected at 3.4% in 2025 and increasing to 4.2% by 2026, according to a United Nations (UN) report. ‘The World Economic Situation and Prospects’ report, released Thursday, said “modest expansion in economic activity is projected for Pakistan, with GDP expected to increase by 3.4%,” in 2025 read the report as the economy “continue to recover from the downturn during the period 2022-2023.” According to the UN report, the near-term economic outlook for South Asia is expected to remain robust. “After increasing by 5.9% in 2024, regional GDP is projected to expand by 5.7% in 2025 and 6% in 2026, supported by strong economic growth in India and recovery in other economies, including Bhutan, Nepal, Pakistan, and Sri Lanka. “However, risks to the outlook are tilted to the downside owing to the possible escalation of geopolitical tensions, deceleration in external demand, ongoing debt challenges, and social unrest. In addition, as the region is highly vulnerable to the impact of climate hazards, extreme weather events pose a significant risk,” it said. The report noted that easing inflationary pressures across the region have enabled most central banks including the State Bank of Pakistan (SBP) to halt monetary tightening or continue cutting policy rates in 2024. It said that interest payments have risen significantly since the pandemic-particularly in countries already facing high-interest burdens, such as Pakistan. “This trend can be attributed to a combination of factors, including increased debt levels and low government revenues.” Delving on Pakistan’s engagements with the International Monetary Fund (IMF), the report highlighted the IMF approved a new, larger programme for Pakistan in September 2024. “The Extended Fund Facility aims to support the efforts of Pakistan to address structural challenges, restore economic stability, and foster sustainable growth. State-owned enterprises, and building climate resilience. Key priorities include rebuilding policy credibility, advancing reforms to boost competitiveness, reforming,” read the report. The inflation rate in Pakistan is expected to remain in double-digits i.e. 10.1% in 2025, which is projected to decelerate to 8.3% in 2026, the report reads. Meanwhile, average consumer price inflation for South Asia is projected to fall from an estimated 9.9% in 2024 to 8.3% in 2025 and 7.2% in 2026.