ISLAMABAD: The International Monetary Fund (IMF) has projected Pakistan’s economic growth at 3.5 percent for fiscal year 2026-27, below the government’s 4 percent target but slightly above the global growth forecast of 3.4 percent, while trailing India’s projected 7 percent growth, while inflation in Pakistan is projected to surge to 9.9 percent, well above the official target of 8.2 percent.
The Fund, in its latest report titled, “World Economic Outlook, Resilience Under Strain, Urgent Choices” released on Tuesday, projected that Pakistan’s current account deficit to widen to one percent of GDP in fiscal year 2026-27 from a surplus of 0.5 percent in fiscal year 2025.
The Fund has projected GDP growth rate at 3.5 percent for fiscal year 2026-27, lower than 3.6 percent in last fiscal year. Headline inflation is projected to rise significantly to 9.9 percent from 7.1 percent in fiscal year 2025-26.
READ MORE: IMF forecasts 3.5pc growth rate for FY27
The Fund has projected Pakistan’s unemployment rate to decline to 6.5 percent in 2026-27, compared with 6.9 percent in last fiscal year and 7.1 percent a year earlier.
The IMF stated that the global economy is again proving resilient, but unevenly so and with rapidly narrowing margins of adjustment in the near term. Activity in the first half of 2026 held up better than expected despite the dragging war in the Middle East and continuing strains from trade tensions.
The technology cycle has provided a demand impulse, driven by strong investment in artificial intelligence (AI).
The interaction of these forces — geopolitics and technology — has produced a split global economy: Favourable terms of trade or technology-related exports and investment give some countries a cushion, whereas others face higher import bills and weaker demand.
Use of buffers and adaptability have helped economies weather the negative shocks so far. Flexible supply responses, rerouting of shipments, inventory draw-downs, fiscal support measures, and lower energy intensity than in previous decades have helped contain the hit to activity from the war.
Private firms have continued to adjust to repeated shocks, including geopolitical risk and shifts in trade policy, while financial markets have maintained a broadly benign view of the challenges, also buoyed by exuberance in the technology segment.
Yet these margins of adjustment are not unlimited. Inventories have been drawn down, commodity markets remain vulnerable, fragmentation could become a greater drag on efficiency, prolonged uncertainty could eventually weigh more heavily on confidence, constraints on energy could impair the AI-led impetus, and financing conditions could change abruptly for any number of reasons, including fiscal sustainability concerns.
Global growth is projected at 3.1 percent in 2026 and 3.4 percent in 2027, unchanged for 2026 and revised moderately upward for 2027, relative to the projections in the April 2026 World Economic Outlook (WEO).
Global headline inflation is projected to increase to 4.7 percent in 2026 before easing to 4.1 percent in 2027, marking a cumulative upward revision of 0.7 percentage point with the temporary increase driven mainly by energy and food prices. 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 benefit from favourable terms of trade.
Conversely, energy-importing economies with little connection to the technology value chain face the most difficult configuration: 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.
World trade volume growth is projected to slow in 2026 and stabilise in 2027, reflecting the drag from tariffs, adjustment in production chains, and continued strength in technology-related trade.
The medium-term growth outlook remains lackluster by historical standards and uneven across countries, in part reflecting varying degrees of AI preparedness and robustness of the energy mix Risks are skewed to the downside.
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. As the Commodity Special Feature shows, price increases driven by physical supply disruptions have larger and more persistent macroeconomic effects than those driven by geopolitical risks.
A reassessment of AI-related profitability and productivity prospects could sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with spillovers to economies integrated into technology supply chains and stakes in technology stocks.
Fiscal vulnerabilities and renewed trade tensions could further weaken growth. Upside risks are also evident: AI-related investment could prove more persistent, productivity gains could materialise faster than assumed, new trade arrangements could improve predictability and resilience, and higher fossil fuel prices could accelerate investment in energy security. Policy needs to navigate competing forces without losing sight of medium-term stability. Given elevated debt, rising sovereign yields, and pressing spending needs, a renewed focus on rebuilding fiscal space is increasingly urgent.
Monetary policy needs to be tailored to circumstances, in line with central banks’ mandates, considering initial conditions before the war, inflation expectations and broader underlying inflation gauges, and the level of the policy rate relative to its neutral level.
The case for maintaining a cautious stance is strongest in energy importers outside the technology value chain with inflation at or below target, while the case for tightening is strongest in economies that are plugged into stronger demand pressures from the technology value chain, where inflation was already above target before the twin shocks and remains so, and where broader price pressures are expected to remain elevated.
At a structural level, strengthening energy security, improving AI readiness, and maintaining open channels for trade and cooperation are essential to raising resilience in a world where shocks are increasingly frequent and asymmetric.
The report noted that the global effects of changes in corporate income tax (CIT) policy depend on how governments’ budgets adjust: Debt-financed tax cuts support domestic activity but can crowd out investment in other economies and generate negative spillovers in the short term.
Copyright Business Recorder, 2026