World Bank slashes Pakistan’s growth forecast for FY2026, projecting the economy to expand by just 2.6%, far below government expectations. The October 2025 MENAAP Economic Update paints a sobering picture of Pakistan’s outlook, citing stubborn inflation, weak investment, and the lingering effects of climate shocks.
In contrast, the State Bank of Pakistan (SBP) had anticipated growth between 3.25% and 4.25%, but the World Bank report indicates a slower recovery. Pakistan’s fragile economy continues to struggle with high prices, limited fiscal space, and low private-sector confidence—factors restraining any significant rebound.
The World Bank attributes much of the slowdown to the devastating floods in Punjab and Sindh, which destroyed nearly 10% of agricultural output. Major crops such as rice, wheat, cotton, sugarcane, and maize suffered heavy losses, threatening food security and export earnings.
Agriculture, which supports almost 40% of Pakistan’s workforce and contributes around one-fifth of its GDP, remains weakened by water shortages and damaged irrigation systems. Poor disaster preparedness and slow rehabilitation have kept food inflation high despite easing global commodity prices.
Externally, Pakistan’s trade performance has been underwhelming. Following new U.S. tariff measures in early 2025, exports are expected to contract by up to 1.5%—the sharpest decline among developing oil-importing countries in the MENAAP region.
While nations like Egypt and Morocco have benefited from tourism and investment-led recoveries, Pakistan’s exports remain limited to low-value textile and agri-based goods. Energy shortages and a lack of diversification continue to prevent exporters from entering higher-value markets.
The National Tariff Policy (2025–2030) aims to reduce tariffs by half over five years, which could eventually improve competitiveness, but its success depends on broader reforms in logistics, taxation, and energy pricing.
World Bank slashes Pakistan’s growth forecast while also warning of worsening poverty. Between 2018 and 2023, the share of people living below the $3-a-day poverty line rose from 16.5% to 46%. At the $4.2-a-day threshold, nearly nine in ten Pakistanis now face poverty, undoing years of progress.
The report cautions that this trend may deepen inequality and trigger social instability. Growing poverty has been linked to lower school attendance, food insecurity, and higher informal employment. With fiscal constraints tightening, the government’s ability to expand welfare programs remains severely limited.
A major highlight of the report is the low participation of women in the workforce. Despite notable improvements in female education, Pakistan’s female labour-force participation stands at just 21%—one of the lowest globally.
The World Bank estimates that enabling women’s employment could lift GDP per capita by 20–30%. However, cultural barriers, safety concerns, and inadequate childcare facilities continue to hold back female participation. The report urges comprehensive policy action, including safer transport, flexible work options, and stronger legal protections to help women join and stay in the labour market.
World Bank slashes Pakistan’s growth outlook partly due to increasing climate vulnerability. Successive floods in 2022 and 2025 caused billions in damages, widening fiscal deficits and diverting resources from development to relief operations.
Without major investments in climate resilience—such as flood-management systems, sustainable farming, and renewable energy—the report warns that Pakistan risks long-term stagnation.
Debt servicing continues to consume a large share of government revenues, leaving limited space for public investment. With external financing tied to IMF support and bilateral loans, fiscal flexibility remains extremely constrained.
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