World Bank projects Pakistan’s GDP growth at 3% for FY26 amid flood impact

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ISLAMABAD: Emphasizing the negative impact of the recent floods, the World Bank has said that it expects the country’s real GDP growth to remain at 3 percent in FY26.

“Forecast on sustained economic stability and commitment to key economic reforms, growth is expected to pick up to 3.4 percent in FY27 but likely to be exposed to global policy uncertainty and risk exposure,” Paxtin said in the update, “while tightening fiscal policies to rebuild buffers will remain limited.”

Recalling that the economy grew by 3 percent in the fiscal year ending June 2025, up from 2.6 percent in the previous year, reflecting expansion in industrial activity and the services sector, WB highlighted that tight and accommodative fiscal policy has helped anchor inflation and core fiscal growth against the global and domestic environment.

“Improved confidence supported growth in the industry and services sector, even as agriculture underperformed, partly due to weather and pest diseases. While favorable, the economic outlook has been tempered by recent floods, which have significantly impacted people and damaged urban areas and agricultural land.”

Stating that the recent floods in Pakistan have imposed significant human costs and economic losses, reduced development prospects, and increased pressure on economic stability, WB Country Director Bolvarma Amgabazar emphasized that “it is important to maintain social security alongside development and strengthen social safety nets and to strengthen social safety nets for all.” Economic resilience”.

Elaborating on the future course of action, the report’s lead author, Mukhtar Al Hasan, said sustaining growth would require a balanced mix of revenue and expenditure to manage the impact of floods while maintaining progress towards fiscal sustainability.

“Immediate 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 ownership and rationalization of the public sector,” he remarked.

Additionally, the lender’s report also focuses on the critical role of exports in achieving long-term economic growth and stability and highlights a decline in exports from 16 percent of GDP in the 1990s to 10 percent in 2024, making growth dependent on debt and remittance-driven consumption, indicating Pakistan’s recurring boom and bust cycles.

Citing recent tariff reforms as key obstacles are high tariffs, burdensome regulations, and expensive energy and logistics, the report calls for a wide range of measures including market-based exchange rates, stronger trade finance, better trade agreements for better logistics and compliance, and expansion of digital and energy infrastructure.

Meanwhile, Anna Tome, co-author of the WB report, said the government has put export growth at the center of its development agenda and has recently made significant progress in addressing policy and structural barriers through the approval of the National Tariff Policy, which will help lower costs for key imported inputs.

However, he noted, tariff reforms alone will not be enough and must be complemented by broader measures to ensure market-fixed exchange rates, stabilize trade finance, enhance trade facilitation, and expand access to export markets.