Key point
- Pakistan’s economy grew 3% in FY25, up from 2.6% in the previous year
- Growth seen steady at 3% in FY26 amid flood impacts, before moderate pickup
- Bank urges fiscal, structural, and export-driven reforms to sustain resilience
ISLAMABAD: The World Bank has urged Pakistan to stay the course on macroeconomic reforms, accelerate job creation, and strengthen social protection systems to achieve a 3 per cent growth projection.
In a latest report, the Bank warns that the impact of recent floods continues to weigh on growth and economic stability.
According to the Pakistan Development Update: Staying the Course for Growth and Jobs, released in Islamabad on Tuesday, Pakistan’s economy grew 3.0 per cent in FY2025, up from 2.6 per cent in the previous year, reflecting stronger industrial output and service-sector expansion despite weak agricultural performance.
The report projects growth to remain at 3.0 per cent in FY2026 due to flood-related damage to crops and infrastructure, before recovering to 3.4 per cent in FY2027 as stability and structural reforms take hold.
“Pakistan’s recent floods have imposed significant human costs and economic losses, dampened growth prospects and adding pressure on macroeconomic stability,” said Bolormaa Amgaabazar, World Bank Country Director for Pakistan, in the release. “Staying the course on reforms and accelerating job creation is critical to maintaining growth, along with strengthening social safety nets and infrastructure that protect the most vulnerable,” she added
The report stated fiscal tightening and prudent monetary policy had helped anchor inflation and maintain current-account as well as primary fiscal surpluses in a difficult global environment. Confidence in industry and services improved. However, agriculture lagged due to adverse weather and pest infestations.
The lead author, Mukhtar Ul Hasan, stated sustaining fiscal progress required a “balanced mix of revenue and expenditure measures” to manage flood recovery while maintaining consolidation targets.
“Urgent implementation of priority fiscal reforms is essential, including broadening the tax base, strengthening tax administration, and reducing the state’s footprint through state-owned enterprise divestiture and rationalising the public sector,” Hasan said.
A special focus chapter of the update highlighted that exports have declined from 16 per cent of GDP in the 1990s to about 10 per cent in 2024, leaving the economy reliant on debt and remittance-driven consumption. High tariffs, regulatory bottlenecks, and costlier energy and logistics were cited as key constraints.
“The government has placed export growth at the centre of its development agenda,” said Anna Twum, co-author of the report, noting recent approval of the National Tariff Policy as “an important step toward lowering input costs.” She added that tariff reforms must be complemented by broader steps, including a market-determined exchange rate, stronger trade finance, and expanded digital and energy infrastructure.
The World Bank stated that Pakistan’s recovery path depends on continuity of macroeconomic stability, export competitiveness, and resilience to climate shocks.
The World Bank in Pakistan
Member since 1950, with cumulative assistance exceeding $48.3 billion.
Current portfolio: 54 projects, total commitment $15.7 billion.
IFC investments since 1956 total about $13 billion, spanning renewable energy, infrastructure, financial inclusion, manufacturing, healthcare, and agribusiness.
