Pakistan’s economy grew by 3.7 percent in fiscal year 2025-26, while average inflation rose to 7.1 percent from 4.5 percent a year earlier, according to a World Bank report.
The figures highlight continued economic growth alongside renewed price pressures driven by higher energy and food costs.
The World Bank expects Pakistan’s economy to grow by 3.8 percent in FY27, while inflation is projected to rise to 8.2 percent. The outlook points to the challenge of sustaining economic growth while managing renewed inflationary pressure in the current fiscal year.
The services sector expanded by 4.1 percent, while agriculture grew by 2.9 percent, supported in part by livestock. The report also noted that international rating agencies S&P and Moody’s upgraded Pakistan’s credit ratings.
Pakistan issued Eurobonds worth $750 million and raised $3 billion in international markets, while foreign exchange reserves reached $19.7 billion. The fiscal deficit narrowed to 2.6 percent of gross domestic product.
Inflation Accelerates as Energy Costs Rise
Inflationary pressures intensified in the second half of FY26, driven by rising global energy prices following the conflict in the Middle East, higher wheat and perishable food prices, and the pass-through of fuel costs.
Average headline inflation stood at around 5.5 percent between July 2025 and February 2026 before accelerating to an average of 10.2 percent from March to June. It peaked at 11.7 percent in May 2026.
Food prices also increased after earlier moderation following flood related disruptions. Average food inflation reached 4.3 percent in urban areas and 5.4 percent in rural areas during the fiscal year.
Energy prices climbed sharply between February and June 2026. Petrol prices rose by approximately 36 percent, high speed diesel by 31 percent and liquefied petroleum gas by 46 percent. Transport fares increased by around 30 percent over the same period.
The increase pushed urban energy inflation from 11.7 percent in February to 26.8 percent in June. Rural energy inflation rose from 5.7 percent to 27.6 percent. Core inflation, which excludes food and energy, averaged 7.4 percent in urban areas and 8.5 percent in rural areas during FY26. Urban core inflation reached 9 percent in May as higher transport costs spread to other prices.
The report noted that the State Bank of Pakistan raised its policy rate to 11.5 percent amid changing inflation conditions.
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