Inflation projected to remain elevated: Real GDP growth likely to stay at 3pc: World Bank
ISLAMABAD: Amid projections of further hike in inflation, the World Bank stated that Pakistan’s real GDP growth, initially projected to accelerate to 3.4 percent in fiscal year 2026, was now expected to remain at 3 percent.
The Bank, in its latest report on Middle East, North Africa, Afghanistan & Pakistan Economic Update (April 2026), noted Pakistan’s GDP growth at 3.1 percent in fiscal year 2025, which is projected at 3 percent for the current fiscal year. The Bank, earlier in October 2025, had projected Pakistan’s GDP at 3.4 percent for the current fiscal year.
Inflation is projected to remain elevated, averaging 4.5 percent in fiscal year 2025 before rising to 7.4 percent in fiscal year 2026.
READ MORE: World Bank says South Asia growth to slow to 6.3pc in 2026 amid ME conflict
On the external front, the current account balance is expected to shift from a surplus of 0.5 percent of GDP in fiscal year 2025 to a deficit of 1.2 percent in fiscal year 2026.
Fiscal account balance is projected at negative 4.3 percent for fiscal year 2026 compared to negative 5.4 percent of GDP in 2025.
The rport noted that the current conflict in the Middle East is not the only source of instability in the region. Tensions between Afghanistan and Pakistan have been rising, the Republic of Yemen’s humanitarian crisis has further deteriorated with acute food insecurity, and the fragile ceasefire in Gaza is increasingly strained.
Further from the frontlines, economies such as the Arab Republic of Egypt, Jordan, and Pakistan face indirect but potentially significant negative spill- overs, transmitted through elevated hydrocarbon prices, energy shortages, and a decline in remittances from the Gulf and tourism.
Several economies in close proximity, such as Egypt, Jordan, and Pakistan, are also affected through inflationary pressures from spiking oil and gas prices and disruptions to tourism and remittances incomes, as well as deteriorating investor sentiment.
Pakistan’s stock exchange was also affected, where the primary benchmark, the
Karachi Stock Exchange-100 index, experienced its largest-ever single-day drop on March 2, plunging by nearly 10 percent. This triggered a market-wide circuit breaker that halts trading temporarily to curb panic-selling during periods of extreme volatility.
Growth in developing oil importers is expected to decelerate moderately, from an estimated 3.8 percent in 2025 to a forecast of 3.7 percent in 2026, driven by growth projections in Egypt and Pakistan, the group’s two largest economies. In Egypt, the 2026 forecast is driven by robust growth in the first half of the fiscal year, resilient private consumption, and growing private investment, offset by slower moderation of inflation due to the conflict.
The report noted that rising energy and commodities prices exert pressures on current and fiscal accounts, while rising spending needs pose headwinds for fiscal consolidation in Morocco and Pakistan. Other risks of the conflict include softer remittances from the Gulf for Jordan and Pakistan, slower tourism in Jordan, potential disruptions in the Red Sea for Djibouti, and slower European market growth for Morocco.
The report also noted that industrial policies that sought to protect Pakistan’s sugarcane industry from competition have been found to create an inefficient industry.
The government is now taking steps to shift the sector from extensive state intervention toward a market-based framework, with pricing, trade and investment decisions guided by market signals. Minimum price supports will be abolished, and farmers will have full discretion over sugarcane cultivation, including the choice of varieties and planting zones. The reform would also lift long-standing prohibitions on sugar imports and exports, eliminate subsidies for sugar exports and mill-specific export quotas, and remove the ban on establishing new sugar mills, it added.
Copyright Business Recorder, 2026