World Bank cuts Pakistan’s GDP growth forecast to 3% for FY2026, inflation seen rising to 7.4%

The World Bank has revised Pakistan’s GDP growth projection for FY2026 down to 3%, citing rising inflation and external pressures, in its latest regional economic update.

The report estimates Pakistan’s economy grew by 3.1% in FY2025 and is now expected to expand at a slower pace in the current fiscal year, compared to an earlier projection of 3.4% made in October 2025.

Inflation is projected to rise, averaging 7.4% in FY2026 after remaining at 4.5% in FY2025, reflecting ongoing price pressures.

On the external front, the current account is expected to move from a surplus of 0.5% of GDP in FY2025 to a deficit of 1.2% in FY2026. The fiscal deficit is projected to narrow to 4.3% of GDP from 5.4% last year.

The report highlighted regional instability as a key risk factor, noting that the ongoing Middle East conflict, tensions between Afghanistan and Pakistan, and disruptions in Gaza and Yemen could impact economic conditions.

Pakistan, along with other economies such as Egypt and Jordan, is expected to face indirect effects through higher energy prices, supply disruptions, and potential declines in remittances and tourism.

The World Bank noted that rising oil and gas prices are likely to add inflationary pressure while also affecting fiscal and external balances. Investor sentiment and market performance have also been impacted, with Pakistan’s stock market experiencing a sharp decline during recent volatility.

Growth in developing oil-importing economies is projected to moderate slightly, with Pakistan contributing to this trend alongside Egypt.

The report also flagged structural issues in Pakistan’s agriculture sector, particularly in sugarcane, where past policies have led to inefficiencies. It noted that the government is moving toward a market-based framework, including removal of price controls, easing of trade restrictions, and allowing greater flexibility in production decisions.

The World Bank said continued reforms and fiscal discipline will be critical to maintaining stability amid external risks and inflationary pressures.