World Bank projects Pakistan's GDP growth at 3% for FY26

• Economic outlook tempered by recent floods: World Bank
• Lender stresses implementation of priority fiscal reforms.
• Urges market-determined exchange rate, stronger trade finance.
  

ISLAMABAD: The World Bank has said that the immediate and lingering impacts of the recent floods are expected to weigh on growth, with real GDP growth projected to remain at 3% in FY26.

"Predicated on continued macroeconomic stability and commitment to key economic reforms, growth is projected to pick up to 3.4% in FY27 but will likely remain constrained amid tight fiscal policies aimed at rebuilding buffers amid continuing global policy uncertainty and vulnerability to natural disasters and climate shocks," said the lender in its "Pakistan Development Update: Staying the Course for Growth and Jobs".

Recalling that the economy expanded by 3% in the fiscal year ending June 2025, up from 2.6% in the previous year, reflecting a rebound in industrial activity and an expansion in the services sector, the WB highlighted that tightening and appropriate monetary policy helped anchor inflation and support current account and primary fiscal surpluses amidst a challenging global and domestic environment.

"Improved confidence supported industry and service sector growth, even as agriculture growth underperformed, in part due to adverse weather and pest infestations. While favourable, the economic outlook has been tempered by recent floods, which have resulted in a significant impact on people and damage to urban areas and agricultural land."

Noting that recent floods in Pakistan imposed significant human costs and economic losses, dampening growth prospects, and adding pressure on macroeconomic stability, WB's Country Director Bolormaa Amgaabazar stressed that "staying the course on reforms and accelerating job creation is critical to maintaining growth along with strengthening social safety nets and infrastructure that protects the most vulnerable citizens, and that will help ensure sustainable development and economic resilience for all".

Expanding on the future course of action, the report's lead author, Mukhtar Ul Hasan, said that sustaining progress will require a balanced mix of revenue and expenditure measures to manage flood impacts while maintaining progress towards fiscal consolidation.

"Urgent implementation of priority fiscal reforms is essential, including broadening the tax base, strengthening tax administration, and reducing the presence of the state in the economy through state-owned enterprise divestiture and rationalising the public sector," he remarked.

Furthermore, the lender's report also focuses on the critical role of exports in achieving long-term economic growth and stability and highlights the decline in exports from 16% of GDP in the 1990s to around 10% in 2024, leaving growth dependent on debt and remittance-driven consumption, which underlies Pakistan's recurrent boom-bust cycles.

Citing high tariffs, cumbersome regulations, and costly energy and logistics as key constraints while terming the recent tariff reforms mark a historic step toward openness, the report calls for broader measures including a market-determined exchange rate, stronger trade finance, improved logistics and compliance, deeper trade agreements, and expanded digital and energy infrastructure to drive export-led growth, including in emerging IT services exports.

Meanwhile, WB report's co-author Anna Twum said that government has placed export growth at the centre of its development agenda and has made important strides in tackling policy and structural barriers, most recently through the approval of the National Tariff Policy, which will help lower costs for critical imported inputs.

However, she noted, tariff reforms alone will not suffice and must be complemented by broader measures to ensure a market-determined exchange rate, strengthen trade finance, enhance trade facilitation, and expand access to export markets.