IMF keeps Pakistan growth forecast unchanged at 3.5% for new fiscal year

In its latest update to the World Economic Outlook, the International Monetary Fund (IMF) has kept Pakistan’s economic growth forecast unchanged at 3.5% for the new fiscal year, while warning that renewed conflict in the Middle East could increase commodity price volatility, disrupt supply chains and add pressure on financial conditions.

The IMF projected Pakistan’s growth at 3.5%, unchanged from its previous two assessments since April. The forecast is lower than the government’s 4% growth target for FY2026-27 and slightly below the estimated 3.7% growth recorded in the previous fiscal year.

The IMF said the possibility of renewed conflict in the Middle East remained a major risk to the global outlook, particularly through higher commodity prices, supply shortages, exchange rate pressures and tighter financial conditions.

The warning comes amid renewed attacks by Iran and the United States on each other’s commercial and military installations, raising concerns over the durability of a temporary ceasefire.

Following the withdrawal of the United States permission for Iranian oil exports and subsequent aerial attacks, crude oil prices have risen by $8 per barrel in two trading days. Diesel prices for Pakistani imports have increased by $5 so far, while petrol prices have remained largely stable. This could lead to upward adjustments in domestic fuel prices on Friday if international prices do not correct over the next two days.

The IMF projected the average petroleum spot price index at $89 per barrel, 9% higher than assumed in its April 2026 reference forecast. Natural gas prices are projected at $15, 5% higher than the April estimate.

The Fund said the relatively muted rise in oil prices reflected inventory drawdowns, which had partly offset lower oil flows through the Strait of Hormuz. However, it warned that inventories were moving closer to multiyear lows and could reach stress levels if supply disruptions persisted or hoarding increased.

Globally, the IMF projected economic growth at 3% in 2026 and 3.4% in 2027, down from the average of 3.5% recorded over the previous two years but broadly unchanged from the April 2026 World Economic Outlook.

The Fund said the modest slowdown reflected the impact of the Middle East war, partly offset by stronger momentum in the global technology cycle due to advances in artificial intelligence and its adoption.

Global headline inflation is expected to rise from 4.1% in 2025 to 4.7% in 2026 before easing to 3.9% in 2027. The IMF said this showed that the disinflation trend seen since early 2024 had stalled.

The impact of current global shocks varies across countries, depending on their exposure to the Middle East conflict and their place in the technology value chain. Energy exporters outside the conflict zone are expected to benefit from favourable terms of trade, while economies linked to the technology-led upturn may see stronger activity even if they are energy importers.

For the Middle East and Central Asia, the IMF projected growth to fall sharply to 0.7% in 2026 before rebounding to 6.5% in 2027. This marks a downward revision of 1.2 percentage points for 2026 and an upward revision of 1.9 percentage points for 2027, reflecting a longer closure of the Strait of Hormuz than assumed in the April outlook and a larger expected rebound.

Iraq, Kuwait and Qatar, identified as commodity producers most affected by disruptions to energy output and transport, are projected to contract sharply in 2026 before posting double-digit expansions in 2027. Saudi Arabia is expected to be less affected, with growth forecast at 1.7% in 2026 and 5.5% in 2027.