Pakistan’s economy has expanded by three per cent in fiscal year 2025 (FY25), the World Bank said in a report on Tuesday, but cautioned that growth is likely to remain the same in the next fiscal year due to the impacts of the recent floods.
Earlier this month, the WB had cut[1] its growth forecast for Pakistan by half a per cent to 2.6pc for the current fiscal year due to the recent floods[2], which are also expected to push up inflation to 7.2pc. It had said that for FY 2025/26, real gross domestic product (GDP) growth was projected to remain around 2.6pc, as ongoing catastrophic floods had damped the forecast.
It projected a 3.1pc growth rate for the country in its previous biannual outlook in April 2025. Pakistan has set 4.2pc growth target[3] and has since been looking at 3.5pc as part of its engagements[4] with the International Monetary Fund (IMF).
In the report released today, titled — Staying the Course for Growth and Jobs[5] — WB predicted that the economy’s “growth is projected to remain at three per cent for the fiscal year ending in June 2026, due to the impacts of recent floods on the agriculture sector, before picking up in the medium term as ongoing stability and continued reforms enhance growth prospects.”
It said that the country’s economy “expanded by three per cent in the fiscal year ending June 2025, up from 2.6pc in the previous year.”
“Immediate and lingering impacts of the recent floods are expected to weigh on growth, with real GDP growth projected to remain at three per cent in FY26,” it added.
Citing the reasons behind the expansion, the WB stated that, “Fiscal tightening and appropriate monetary policy helped anchor inflation and support current account and primary fiscal surpluses amidst a challenging global and domestic environment.”
“Improved confidence supported industry and service sector growth, even as agriculture growth underperformed, in part due to adverse weather and pest infestations,” it added.
However, it cautioned that while the outlook remained favourable, it also “has been tempered by recent floods, which have resulted in significant impact on people and damage to urban areas and agricultural land.”
“Pakistan’s recent floods have imposed significant human costs and economic losses, dampening growth prospects, and adding pressure on macroeconomic stability,” the World Bank Country Director for Pakistan, Bolormaa Amgaabazar, was quoted as saying in the release.
Amgaabazar continued: “Staying the course on reforms and accelerating job creation is critical to maintaining growth along with strengthening social safety nets and infrastructure that protects the most vulnerable citizens, and that will help ensure sustainable development and economic resilience for all.”
For FY27, the WB projected 3.4pc growth, “predicated on continued macroeconomic stability and commitment to key economic reforms.”
However, the lending body cautioned that the growth “will likely remain constrained amid tight fiscal policies aimed at rebuilding buffers amid continuing global policy uncertainty and vulnerability to natural disasters and climate shocks.”
According to the lead author of the WB report, Mukhtar Ul Hasan, “sustaining progress will require a balanced mix of revenue and expenditure measures to manage flood impacts while maintaining progress towards fiscal consolidation.”
He termed the “urgent implementation“ of priority fiscal reforms as “essential.”
These reforms can include: broadening the tax base, strengthening tax administration, and reducing the presence of the state in the economy through state-owned enterprise divestiture and rationalising the public sector.
On the matter of exports, the statement, citing a chapter from the report, said, “Pakistan’s exports have declined from 16pc of GDP in the 1990s to around 10pc in 2024, leaving growth dependent on debt and remittance-driven consumption, which underlies Pakistan’s recurrent boom-bust cycles.”
“The chapter cites high tariffs, cumbersome regulations, and costly energy and logistics as key constraints, noting that recent tariff reforms mark a historic step toward openness,” the statement read.
It continued: “The chapter calls for broader measures, including a market-determined exchange rate, stronger trade finance, improved logistics and compliance, deeper trade agreements, and expanded digital and energy infrastructure to drive export-led growth, including in emerging IT services exports.”
The co-author of the report, Anna Twum, said, “The government has placed export growth at the centre of its development agenda and has made important strides in tackling policy and structural barriers, most recently through the approval of the National Tariff Policy[6], which will help lower costs for critical imported inputs.“
“However, tariff reforms alone will not suffice and must be complemented by broader measures to ensure a market-determined exchange rate, strengthen trade finance, enhance trade facilitation, and expand access to export markets,“ Twum added.
On October 1, the Asian Development Bank (ADB) also maintained[7] Pakistan’s growth forecast for the current year at three per cent, while revising its inflation forecast upwards to six per cent, citing the impact of recent floods on agriculture and infrastructure.
On Monday, the government claimed[8] a rare Rs1.5 trillion federal fiscal surplus — instead of usual deficits — in the first quarter of the current fiscal year.
Flood losses
In September, massive floods[9] in the country struck both the rural heartland and industrial centres for the first time in decades, causing billions of dollars in damage while straining food supplies, exports and a fragile economic recovery.
Record monsoon rains since late June, amplified by dam releases from India, submerged large swathes of Punjab and Sindh in the past month.
Officials and analysts warn the hit could be deeper than in 2022 floods[10], when a third of the country lay under water, due to dual shocks to agriculture and manufacturing.
Out on the plains, satellite images have traced the scale. A report from the agricultural monitoring initiative GEOGLAM estimates at least 220,000 hectares of rice fields flooded between August 1 and September 16.
In Punjab, 1.8 million acres of farmland have been inundated, according to the Provincial Disaster Management Authority (PDMA).
“About 50pc of rice, and 60pc of cotton and maize crops have been damaged,” said Khalid Bath, chairman of the Pakistan Farmers Association.
References
- ^ cut (www.dawn.com)
- ^ floods (www.dawn.com)
- ^ target (www.dawn.com)
- ^ engagements (www.dawn.com)
- ^ Staying the Course for Growth and Jobs (www.worldbank.org)
- ^ National Tariff Policy (www.dawn.com)
- ^ maintained (www.dawn.com)
- ^ claimed (www.dawn.com)
- ^ floods (www.dawn.com)
- ^ floods (www.dawn.com)