IMF raises Pakistan growth outlook to 3.6% despite flood risks

• The expected increase is due to the normalization of prices.
• Pakistan’s growth in 2026 will pick up amid reforms, boosting confidence.
• IMF fiscal outlook improves for MENAP oil importers.
  

ISLAMABAD: The International Monetary Fund (IMF) has revised Pakistan’s economic growth forecast upwards to 3.6% for the current financial year, while warning that recent severe floods in the third quarter of 2025 may adversely affect growth, inflation and the current account beyond the current expectations. The News reported on Wednesday.

In its Regional Economic Outlook for the Middle East and Central Asia, the IMF noted that while inflation in Pakistan has slowed significantly this year due to lower food and energy prices, it is expected to rise again in 2026.

This expected increase is due to the normalization of prices and the phasing out of short-term electricity subsidies.

Pakistan’s growth is projected to increase to 3.6% in 2026, supported by steady implementation of reforms, improving economic conditions and growing confidence.

This revised figure is an improvement over the Fund’s previous forecast of 3.25% to 3.5% for FY26, which was announced last week after a staff-level agreement was reached with Pakistan under the existing Extended Fund Facility (EFF) and Resilience Sustainability Facility (RSF). Pakistan’s GDP grew by 3.04% in the last financial year, 2024-2025.

The report highlighted that in the oil-importing countries of the Middle East and North Africa, Afghanistan and Pakistan (MENAP), cyclically adjusted primary fiscal balances are projected to improve. This is due to tax policy and administration reforms helping to mobilize revenue in countries such as Egypt, Jordan, Morocco and Pakistan, while energy subsidy reforms are helping to contain spending in Egypt, Morocco and Pakistan.

The IMF also warned that higher borrowing costs could exacerbate fiscal and financial vulnerabilities across the region, particularly in economies with high projected gross government financing needs and banking sectors that hold large shares of government bonds, such as Algeria, Egypt and Pakistan.

As of 2020, the Fund has approved $55.7 billion in financing for countries in the MENAP and CCA regions. A significant portion, $21.4 billion, has been approved since early 2024 for programs in Egypt, Jordan, Morocco and Pakistan.

In addition to funding, the IMF has delivered more than 385 technical assistance and capacity-building projects in 31 countries in these regions, amounting to $36.8 million during fiscal year 2024/25.

The report said economic performance in the Middle East and Central Asia has shown resilience so far in 2025, despite heightened global uncertainty and regional geopolitical tensions.

Growth in the Middle East and North Africa is forecast to strengthen gradually, supported by oil production, strong demand and reforms, while growth in the Caucasus and Central Asia is expected to slow to a more sustainable pace.

The outlook, however, faces risks from weaker global demand, tighter economic conditions, renewed geopolitical instability and climate shocks. The IMF concluded that fiscal prudence, structural reforms and stronger policy frameworks are necessary to sustain sustainable growth.