IMF macroeconomic projections for 2026-27

Pakistan has successfully concluded the third review of the IMF Programme. An installment of USD 1.2 billion has also been received.

The IMF Staff Report of this review has also been released recently. It contains the macroeconomic projections for 2025-26 up to 2030-31. Further, it includes the Extended Fund Facility (EFF) policy discussions with the government, programme modalities and staff appraisal.

There are three special boxes in the Report. The first is on the impact of the Middle East war. The second is on the potential for further revenue mobilization and the third on energy pricing in Pakistan.

There is need to focus on the contents of these special boxes and derive their implications for macroeconomic developments in 2026-27. Thereafter, the IMF projections for 2025-26 and 2026-27 are presented in this article and the next article. An assessment is made of the validity of these projections.

The IMF report states that Pakistan is highly exposed to spillovers from the war in the Middle East, first in the form of higher cost of energy imports and, second, in the event of sustained disruptions in the availability of fuel imports there will be a significant impact on economic activity.

The other impact is likely due to fertilizer import disruptions, especially of DAP. The next impact could be lower remittances. 55 percent are from the GCC economies and are likely to decline significantly, especially from the UAE and impact significantly on the balance of payments. A possible third impact could be a decline in short-term commercial financing from GCC banks.

Turning to the second box on potential for further revenue mobilization, the concentration of the tax base in a few sectors is highlighted and the expansion of the tax base to agricultural income, real estate and business services is recommended. Further, the scope is identified for eliminating sales tax expenditures, improving compliance and substantially increasing provincial revenues.

The third box on energy pricing in Pakistan focuses on fuel prices, electricity prices and gas prices. An analysis is undertaken of the energy pricing policies in the country.

These three boxes highlight the impact of exogenous events like the Middle East war and of taxation and energy pricing policies. The issue is whether these impacts are adequately reflected in the macroeconomic projections for 2025-26 and 2026-27.

The first key projection by the IMF is of the GDP growth rate in 2025-26 and 2026-27. It is expected to be at 3.6 percent in 2025-26. The National Accounts Committee has recently approved the estimate of GDP growth rate of 3.7 percent for 2025-26. This is based on the presumption of only a small fall in the growth rate in the fourth quarter of 2025-26 due to the onset of the war in the Middle East.

The real issue is with the IMF projection of the GDP growth rate at 3.5 percent in 2026-27. This implies only a marginal effect of the Middle East war on the growth momentum in the economy. It does not reflect the big shortfall in fertilizer use in the forthcoming Kharif season and the continued occurrence of power loadshedding due to shortage of fuel inputs. Of course, the size of the impact will depend on the length of the war and the timing of the opening of the Strait of Hormuz.

A perhaps more realistic projection is for the GDP growth rate is of a fall to 2.5 percent in 2026-27, in comparison to the expected outcome of 3.6 percent in 2025-26. This will not imply any increase in the real per capita income next year and a rise in the unemployment rate from close to 7 percent in 2024-25 to above 9 percent in 2026-27.

The second key projection is of the rate of inflation. The IMF projection is of a period average rate of 7.2 percent in 2025-26 and 8.4 percent in 2026-27. The projected end-period rate of inflation is 11.5 percent in 2025-26 and 7 percent in 2026-27.

The Consumer Price Index has risen sharply since the commencement of the war, due particularly to the quantum jump in POL prices. The rate of inflation in the CPI on a year-to-year basis was 7.0 percent in February 2026, rising to 10.9 percent by April 2026. The average rate of inflation in the first ten months of 2025-26 was 6.2 percent. The IMF projection implies that the inflation rate in the last two months of 2026-27 will be 12.2 percent. This is consistent with the trend up to April 2026.

However, the issue is with the rate of inflation projection for 2026-27. The IMF expects it to average 8.4 percent next year. However, it is likely to be close to 12 percent at the end of 2025-26. A fall to 8.4 percent average next year will require a sharp drop in the rate of inflation month by month in 2026-27. A more realistic projection is for the average rate of inflation to average 12 percent in 2026-27. This is reinforced by the IMF estimation of depreciation in the value of the rupee of over 15 percent in 2026-27.

Therefore, the IMF projections of the two key macroeconomic variables of GDP growth rate and rate of inflation appear be unduly optimistic, as highlighted below in the Table 1.

The implication is that there is a need to look at the other projections by the IMF for 2025-26 and 2026-27, related to the balance of payments and the public finances of Pakistan. This will be undertaken in the next week’s article.

Copyright Business Recorder, 2026