The World Bank on Tuesday projected Pakistan’s economy to grow by 3% in the ongoing fiscal year, citing lingering effects of this year’s floods on the agriculture sector.
In its latest Pakistan Development Update: Staying the Course for Growth and Jobs, the bank said Pakistan’s economy had similarly grown by 3% in FY25, up from 2.6% a year earlier. It credited this increase to a rebound in industrial activity and expansion in the services sector. It said growth should pick up moderately in the medium-term, supported by macroeconomic stability and continued reform efforts.
The lender said fiscal tightening and monetary discipline had helped anchor inflation and sustained current account and primary fiscal surpluses despite global and domestic challenges. Improved confidence boosted industry and services, even as agriculture lagged behind due to adverse weather and pest infestations, read the report.
“The recent floods have imposed significant human costs and economic losses, dampening growth prospects and adding pressure on macroeconomic stability,” said Bolormaa Amgaabazar, World Bank country director for Pakistan. “Staying the course on reforms and accelerating job creation is critical to maintaining growth, along with strengthening social safety nets and infrastructure that protect the most vulnerable,” she added.
According to the report, the immediate and lingering impacts of the floods would likely constrain growth, with real GDP projected to remain at 3% in fiscal 2026 before rising to 3.4% in fiscal 2027. The recovery, it said, depends on continued fiscal discipline and progress on structural reforms, even as global uncertainty and climate shocks pose risks. “Sustaining progress will require a balanced mix of revenue and expenditure measures to manage flood impacts while maintaining fiscal consolidation,” said Mukhtarul Hasan, lead author of the report. “Urgent implementation of priority fiscal reforms is essential, including broadening the tax base, strengthening tax administration, and reducing the state’s role in the economy through state-owned enterprise divestitures.”
One chapter of the report focuses on the critical role of exports in achieving long-term growth and stability. Pakistan’s exports have fallen from 16% of GDP in the 1990s to around 10% in 2024, leaving the economy heavily reliant on debt and remittance-fueled consumption. The report identified high tariffs, costly energy, cumbersome regulations, and weak logistics as key constraints. It noted that recent tariff reforms mark a historic step toward openness but called for broader action, including a market-determined exchange rate, improved trade finance and logistics, and investment in digital and energy infrastructure to support export-led growth, particularly in IT services.
“The government has placed export growth at the center of its development agenda and made important strides in tackling policy barriers,” said Anna Twum, co-author of the report. “However, tariff reforms alone will not suffice and must be complemented by broader measures to strengthen trade finance, enhance facilitation, and expand access to export markets.”
Fiscal surplus
Separately, the Ministry of Finance issued its Monthly Economy Update and Outlook for October 2025, claiming a Rs. 1.5 trillion federal fiscal surplus in the first quarter of the ongoing fiscal year. However, it warned, flood-related supply disruptions and temporary border closures had led to a surge in prices of several essential commodities.
According to the report, net federal revenues increased by 231.4% to Rs. 3.27 trillion in the first two months (July-August) of FY26, compared to Rs. 986.7 billion in the same period last year. It said total outlays increased by 7.6% to Rs. 1.76 trillion. “Consequently, the federal fiscal balance recorded a surplus of Rs. 1.509trillion, compared to a deficit of Rs. 648.8 billion last year. The primary balance also improved sharply, posting a surplus of Rs. 2.939 trillion, up from Rs. 49.4 billion in the corresponding period,” it added.