The International Monetary Fund (IMF) has raised its inflation forecast for Pakistan to 9.9 percent for fiscal year 2026-27 while keeping its economic growth projection unchanged at 3.5 percent, casting doubt on the government’s target of 4 percent growth.
According to the IMF’s latest World Economic Outlook (WEO), released on Tuesday during its annual meetings, inflation is expected to rise from the lender’s earlier projection of 8.4 percent. The IMF had maintained that forecast in its July report.
The new inflation projection is also above the government’s official target of 8.2 percent. During recent staff-level talks, the federal government and the State Bank of Pakistan maintained that the country could meet its annual inflation target despite mounting price pressures.
The IMF did not provide Pakistan-specific reasons for revising its inflation forecast. However, it raised inflation projections for the Middle East and Central Asia region amid an ongoing conflict that has disrupted energy supplies and pushed up prices.
The higher forecast could also strengthen the case for maintaining or increasing interest rates to contain inflationary pressures. The government has been passing higher fuel costs on to consumers while imposing substantial taxes on petroleum products.
To cushion the impact, the government introduced monthly payments of Rs. 2,000 for motorcyclists and Rs. 3,000 for small car owners. However, the IMF has objected to the scheme, describing it as broad-based and costly.
The IMF also noted that global headline inflation rose in August as energy prices rebounded following a brief ceasefire in the Middle East.
Growth Forecast Remains Unchanged
The IMF retained its projection for Pakistan’s economic growth at 3.5 percent for the current fiscal year, unchanged from its previous estimate. The forecast falls short of the government’s 4 percent growth target.
Finance Minister Muhammad Aurangzeb recently told Reuters that he remained confident Pakistan would achieve growth of more than 4 percent.
Pakistan has pursued economic stabilization under three successive IMF programs. The World Bank has identified the prolonged stabilization process as one of the factors contributing to higher poverty in the country.
Planning Minister Ahsan Iqbal has also urged the government to adopt a new fiscal framework that supports economic growth and development alongside stabilization. In a recent memorandum to Prime Minister Shehbaz Sharif, he argued that the country was increasingly relying on cuts to development spending and additional borrowing rather than expanding its tax base and exports.
Iqbal warned that voters would judge the government in 2029 on economic conditions, including growth, employment, incomes, investment, exports, inflation, energy costs and economic opportunities.
Current Account Deficit to Widen
The IMF has projected Pakistan’s current account deficit at 1 percent of gross domestic product, equivalent to approximately $4.4 billion. This is about $450 million higher than its previous forecast.
The lender also revised its regional outlook amid disruptions linked to the Middle East conflict. It expects growth in the Middle East and Central Asia to slow to 0.3 percent in 2026 before rebounding to 6.3 percent in 2027. The projections reflect the possibility of a longer closure of the Strait of Hormuz than previously assumed, followed by a stronger recovery after it reopens.
Global Growth Outlook
Despite geopolitical tensions and energy market disruptions, the IMF kept its global growth outlook broadly unchanged from April, projecting global economic growth of 3.1 percent in 2026 and 3.4 percent in 2027.
Global headline inflation is expected to reach 4.7 percent in 2026 before declining to 4.1 percent in 2027. The IMF expects the impact on core inflation to remain limited.
The lender said global economic activity performed better than expected in the first half of 2026 despite the war in the Middle East and ongoing trade tensions. Strong investment in artificial intelligence has also supported demand.
However, the IMF warned that the global economy’s resilience was under pressure. Declining energy inventories and further geopolitical shocks could trigger renewed price increases and supply disruptions, particularly for countries facing higher import costs and weaker demand.
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