The United Nations has forecast Pakistan’s economy to grow in 2025 and 2026, provided the country does not experience any climate change-induced natural disasters.
In its “World Economic Situation and Prospects” report, the U.N.’s Department of Economic and Social Affairs has noted the devastating impact of climate change-related shocks on South Asian economies. It noted that extreme weather events in the past year had disproportionately affected poor rural households across South Asia, including Pakistan. This had led to reductions in incomes and widened income inequality, it added.
In the first half of 2024, read the report, several regional nations, including Bangladesh, India, Pakistan, and Sri Lanka had experienced heatwaves, droughts, and irregular rainfall patterns. These events, it stressed, had reduced crop yields and elevated food prices, boosting inflation.
Economic growth
The U.N. report has forecast Pakistan’s economy to grow by 3.5% in 2025 and 4.2% in 2026. Meanwhile, it estimated, inflation would cap at around 10.1% in 2025 and average out to 8.3% in 2026. The real effective exchange rate, it said, would be around 85.6 in 2025 and around 97.11 in 2026. It noted Pakistan’s central bank has reduced its key policy rate in recent months to support economic recovery.
For South Asia as a whole, the near-term economic outlook is expected to remain robust. After increasing by 5.9% in 2024, regional GDP is projected to expand by 5.7% in 2025 and 6 percent in 2026, supported by strong economic growth in India and recovery in other economies, including Bhutan, Nepal, Pakistan, and Sri Lanka.
Economic risks
Highlighting risks to the outlook, the U.N. report has warned about possible escalation of geopolitical tensions, deceleration in external demand, ongoing debt challenges, and social unrest. In addition, as the region is highly vulnerable to the impact of climate hazards, extreme weather events pose a significant risk.
The report said fiscal and external vulnerabilities persist across the region. Public debt has stayed high, with debt sustainability remaining a concern in several countries.
Debt
In 2024, average general government debt in South Asia was well above its long-term average and is the highest among developing nations. In Bangladesh, Pakistan, Papua New Guinea, and Sri Lanka, fiscal adjustment is implemented as part of IMF-supported programs.
In September 2024, the IMF approved a new, larger program for Pakistan: a 37-month Extended Fund Facility worth $7 billion. This new arrangement builds on the progress made under the 2023 Stand-by Arrangement of the IMF and focuses on longer-term structural reforms. The Extended Fund Facility aims to support the efforts of Pakistan to address structural challenges, restore economic stability, and foster sustainable growth. Key priorities include rebuilding policy credibility, advancing reforms to boost competitiveness, reforming state-owned enterprises, and building climate resilience.
Interest payments have risen significantly since the pandemic—particularly in countries already facing high interest burdens, such as the Maldives, Pakistan, and Sri Lanka. The report noted that in aggregate terms, regional government interest payments on debt as a share of fiscal revenues are higher than the median for developing economies.