Pakistan’s economy is projected to grow modestly by 2.6% in FY2025-26, as catastrophic floods weigh on agricultural output and inflation pressures resurface, noted the latest World Bank economic report on the Middle East, North Africa, Afghanistan & Pakistan (MENAAP) on Tuesday.
“In Pakistan, real GDP at factor cost is expected to have grown by 2.7% year-on-year in FY 2024/25, slightly above FY 2023/24’s 2.5 % expansion. For FY 2025/26, real GDP growth is projected to remain around 2.6%, as ongoing catastrophic floods have damped the forecast,” read the report.
The World Bank shared that early estimates suggest a drop of at least 10% in agricultural output in Punjab, affecting major crops such as rice, sugarcane, cotton, wheat, and maize.
“For FY 2026/27, growth is expected to accelerate to 3.4%, supported by higher agricultural output, lower inflation and interest rates, recovering consumer and business confidence, and a rebound in private consumption and investment.
“Looking ahead, Pakistan, which had historically maintained high tariffs with a complex structure, stands to benefit in terms of exports and growth from a recently approved five-year reform plan (2025-2030) to reduce its tariffs by half,” said the World Bank.
The report said that inflation has been receding in regional economies where it was especially high in recent years.
“Pakistan’s inflation rate dropped to single digits in FY 2024/25, as price increases for food and energy eased. However, disruption to food supply chains, due to ongoing catastrophic floods, is expected to push inflation up through 2027,” it projected.
World Bank noted that in line with global trends, poverty at the lower-middle-income line in Pakistan dropped by 9.4 pps between 2011 and 2018.
“However, a combination of economic shocks and natural disasters since 2020 is projected to have stalled this trend of poverty reduction. Furthermore, due to its relatively high poverty rate and large population, the country accounts for a large share of MENAAP’s poor,” the report noted.
Meanwhile, the report points to an improved economic outlook for the MENAPP region, with expected growth reaching 2.8% in 2025 and 3.3% in 2026. “However, global uncertainty, trade policy shifts, and continued conflict and displacement all pose possible risks,” it said.
The report found that Pakistan has one of the highest fertility rates in the region. However, its demographic transition is following a similar trajectory as its peers, only delayed, with the fertility rate projected to fall below replacement level within one generation. It noted that in economies such as Pakistan, removing the barriers that prevent women from joining the labour market could lift GDP per capita by 20 to 30%-the largest potential gains globally.