ISLAMABAD: The International Monetary Fund (IMF) has projected Pakistan’s economic growth at 3.5 per cent during the current fiscal year and inflation to remain close to double digits for another year, notwithstanding global growth rebounding to 3.4pc.
In its flagship World Economic Outlook, released at the launch of the World Bank-IMF annual meetings in Bangkok, the fund estimated Pakistan’s current account deficit to widen to 1pc of GDP from a surplus of 0.5pc in FY2025. Headline inflation is projected to rise significantly to 9.9pc from 7.1pc last year.
However, the Washington-based lending agency projected Pakistan’s unemployment rate to decline to 6.5pc this year, compared with 6.9pc last year and 7.1pc a year earlier.
The fund, which concluded its review of Pakistan’s economic situation last week, did not explain the projected decline in unemployment despite the rising population and its other economic forecasts, including higher inflation and a widening current account deficit.
The fund’s growth projections are significantly lower than the government’s 4pc target for the current year and the 3.8pc forecast by the World Bank last month. Its estimated 3.5pc growth rate for Pakistan is slightly lower than the 3.6pc recorded last year but higher than the 3.2pc in FY2025.
Saying global economic activity had proved resilient despite multiple challenges, the international lender projected global growth to slow to 3.1pc in 2026 before rebounding to 3.4pc in 2027. Global headline inflation is projected to rise notably to 4.7pc in 2026 before easing to 4.1pc in 2027, it added.
The IMF attributed global economic resilience to the technology upturn, buffers and adaptations that helped mitigate the damage from geopolitics-driven disruptions.
“In less than seven years, the global economy has been subjected to an exceptional sequence of events. The pandemic and the ensuing disruptions to global supply chains; the wars in Ukraine and the Middle East, with the consequent sharp increases in the prices of energy and other commodities; and significant changes in trade barriers and trading relations have tested the resilience of households, firms, financial markets, and governments,” it said.
“Individually, each of these major developments would have been considered unlikely. Their confluence over such a short period of time is even more extraordinary. Yet, despite this barrage of shocks, the global economy has held up,” the IMF said.
It added that labour markets had remained unexpectedly strong, financial systems had broadly withstood the shocks and the sharpest monetary tightening in half a century, while inflation had receded from its peaks in many economies, although it remained persistent in some cases.
The IMF warned that energy-importing economies like Pakistan, which have limited links to the technology value chain, face the most difficult outlook. The margins of adjustment that have helped sustain resilience, however, are not limitless, and risks are skewed to the downside.
Further escalation in conflicts, a reassessment of expectations surrounding artificial intelligence (AI), renewed trade tensions and fiscal vulnerabilities could weaken growth. On the upside, stronger momentum in AI investment and productivity gains from AI, or a sustained easing of geopolitical and trade tensions, could strengthen growth, it said.
The fund advised its members that fiscal frameworks must deliver better results in dealing with disruptive shocks and build policy space through revenue measures. During cost-of-living crises, governments should preserve price signals and rely primarily on temporary, targeted income support for the most vulnerable, it said.
The stable global aggregate masks a reallocation of growth across economies. Countries with limited direct exposure to the war shock and strong participation in the technology upturn are seeing activity hold up or strengthen. Energy exporters outside the immediate conflict zone are benefiting from favourable terms of trade.
Conversely, energy-importing economies with little connection to the technology value chain face the most difficult combination of higher import costs and exchange rate pressures, weaker real incomes, more constrained fiscal space and fewer offsetting demand impulses.
Many low-income and vulnerable countries belong to this latter group, increasing the risk that recent shocks will widen income gaps across and within countries.
The IMF projected world trade volume growth to slow in 2026 and stabilise in 2027, reflecting the drag from tariffs, adjustments in production chains and continued strength in technology-related trade.
Global imbalances are expected to decline only modestly over the medium term, as large fiscal deficits, limited domestic rebalancing, technology-driven capital flows and differing demand compositions across major economies under current policies continue to sustain external gaps.
The medium-term growth outlook remains lacklustre by historical standards and uneven across countries, partly reflecting varying degrees of AI preparedness and the robustness of energy mixes.
Risks are skewed to the downside, the IMF warned, adding that a prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated and volatile, revive inflationary pressures, worsen fiscal and external balances, and weigh on growth.
Further disruptions to energy infrastructure, cyberattacks or extreme weather events could amplify these effects.
A day earlier, Finance Minister Muhammad Aurangzeb told Reuters that the government expected the economy to grow by more than 4pc this fiscal year despite elevated oil prices. He also said the government was looking to privatise five to six entities during the year, potentially raising more than $1 billion.
Pakistan’s economy remains vulnerable to a prolonged conflict in the Middle East because of its dependence on Gulf energy imports, remittances and financing support from the region.