KARACHI: The International Monetary Fund (IMF) this week slashed Pakistan’s GDP growth for the next fiscal year to 3.5 percent in its latest report, blaming the Iran war and surging tensions in the Middle East region for disrupting growth and disinflation worldwide.
In its flagship World Economic Outlook (WEO) report released on Tuesday, the global lender said it projects Pakistan’s GDP growth to remain at 3.6 percent during the current fiscal year, slashing it to 3.5 percent in FY27. In its January 2026 outlook, the IMF projected Pakistan’s economic growth at 3.2 percent for FY26 and 4.1 percent for FY27.
The report further said that inflation in Pakistan is expected to remain at 7.2 percent on average this fiscal year but increase to 8.4 percent in FY27.
The IMF said that assuming the Iran war and tensions in the Middle East remain limited in duration and scope, global growth is projected to slow to 3.1 percent in 2026 and 3.2 percent in 2027. Inflation, the report said, is projected to rise “modestly” in 2026 before resuming its decline in 2027.
“Slowdown in growth and increase in inflation are expected to be particularly pronounced in emerging market and developing economies,” the IMF report said.
The WEO is a survey of prospects and policies by the IMF staff, usually published twice a year, with updates in between. It presents analyzes and projections of the world economy in the near and medium term.
The US-Israel war on Iran since February has rattled global energy markets and created supply shocks that have raised fuel and food prices worldwide.
Pakistan has twice hiked the price of petroleum products since Feb. 28 and introduced emergency measures such as closing markets early and shutting schools to conserve energy.
The report further said Pakistan’s current account balance, which showed a surplus of 0.5 percent during FY25, is now forecast to show a 0.4 percent deficit this fiscal year, which is expected to widen to a 0.9 percent gap in FY27.
The unemployment rate in Pakistan is expected to fall to 6.9 percent this year from 7.1 the previous fiscal year. The IMF projected the rate of unemployment to further fall to 6.5 percent in FY27.
Muhammad Waqas, head of research at JS Global Capital Ltd., told Arab News on Wednesday that the growth forecast of 3.5 percent is modest but also signals a “steady and sustainable trajectory” of Pakistan’s economy.
“The fundamentals are aligning and the IMF numbers reflect just that,” he said. “We believe average inflation for fiscal year 2027 could, however, be lower than the IMF’s 8.4 percent.”
He said the current surge in inflation is expected to be transitory in nature, largely due to a two-month phenomenon driven by war-related disruptions.
“As the situation normalizes, God willing, inflation is projected to revert to its 5-8 percent range, keeping the broader story firmly intact and negating the need for aggressive or prolonged tightening cycle,” he added.
