Pakistan’s economy to grow by 2.6% amid flood damage, says World Bank

ISLAMABAD: Pakistan’s economy is expected to expand modestly by 2.6 percent in the fiscal year 2025-26, as devastating floods continue to hit agriculture and inflationary pressures begin to rise again, according to the World Bank’s latest Economic Outlook for the Middle East, North Africa, Afghanistan & Pakistan (MENAAP) released on Tuesday.

The report said that real GDP is estimated to have grown by 2.7 percent in FY2024-25, slightly higher than the previous year’s 2.5 percent, but the outlook for the upcoming fiscal year remains subdued due to severe damage to farmland and crops.

Agriculture faces heavy losses

The World Bank noted that early estimates show a drop of at least 10 percent in agricultural output in Punjab, Pakistan’s main farming province. Major crops such as rice, sugarcane, cotton, wheat and maize have been badly affected. This decline is expected to have ripple effects on food supply, inflation and rural incomes.

For FY2026-27, the Bank expects growth to accelerate to 3.4 percent, supported by a recovery in agriculture, lower inflation and interest rates, and a rebound in consumer and business confidence. “Looking ahead, Pakistan, which had historically maintained high tariffs with a complex structure, stands to benefit from a recently approved five-year reform plan (2025–2030) to reduce its tariffs by half,” the report stated.

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Inflation set to rise again

The report highlighted that Pakistan’s inflation fell to single digits in FY2024-25 after a sharp decline in food and energy prices. However, supply chain disruptions caused by ongoing floods are expected to push prices up again through 2027.

While inflation has eased in most regional economies, Pakistan’s fragile food sector and import dependence leave it vulnerable to renewed price shocks.

Poverty concerns persist

The World Bank said that between 2011 and 2018, Pakistan’s poverty rate at the lower-middle-income line fell by 9.4 percentage points. But the combined impact of economic shocks and natural disasters since 2020 has likely halted this progress. With a high poverty rate and a large population, Pakistan accounts for a significant share of the MENAAP region’s poor.

The report further pointed out that Pakistan has one of the highest fertility rates in the region. However, it is following a similar demographic transition path as its peers and is projected to reach below replacement fertility within a generation.

It added that removing barriers preventing women from joining the workforce could lift Pakistan’s GDP per capita by 20 to 30 percent, offering one of the highest potential gains globally.

Regional outlook

The World Bank report presented a relatively improved picture for the broader MENAAP region, forecasting growth of 2.8 percent in 2025 and 3.3 percent in 2026. However, it warned that global uncertainty, policy shifts in trade, and ongoing conflicts continue to threaten stability and progress across the region.

 

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