The International Monetary Fund (IMF), on Tuesday, revised the economic growth forecast of Pakistan down to 3.5% and raised the inflation projection to 8.4% for the upcoming fiscal year.
It further attributed these changes to the conflict in the Middle East, while indicating that it does not expect any significant negative effects from the war this year.
In its prominent World Economic Outlook (WEO) report, the IMF also adjusted the global growth forecast for the next two years, basing its estimates on oil prices ranging from $100 to $120 per barrel in adverse and severe war scenarios.
The report, released today during the spring meetings, indicated that Pakistan’s economic growth is expected to decelerate to 3.5% in the fiscal year 2026-27, a decrease from the previous forecast of 4.1%.
For the current fiscal year, the IMF has kept the economic growth projection steady at 3.6%, consistent with the estimates from the Asian Development Bank and Fitch rating agency.
The global authority has increased the inflation forecast to 8.4% for the next fiscal year, up from 7% during the second review of the program.
This forecast is currently the highest provided by any international financial institution, which may compel the State Bank of Pakistan to consider raising interest rates.
For the ongoing fiscal year, the IMF has maintained its economic growth estimate for Pakistan at 3.6 percent, while revising the inflation outlook upward to 7.2 percent, compared to an earlier estimate of 6.3 percent.
Pakistan exposed to regional tensions
The Fund highlighted that Pakistan is particularly vulnerable to regional instability, as it imports approximately 90 percent of its energy from the Middle East, heightening its exposure to supply disruptions and price fluctuations.
Nevertheless, the IMF emphasised that it does not expect any significant adverse economic consequences from the conflict during the current fiscal year.
In a more severe scenario where energy infrastructure in the conflict region suffers greater damage, the consequences would be significantly more pronounced, global growth would be reduced to approximately 2% in 2026, while headline inflation would exceed 6% by 2027.
Furthermore, the effect on emerging markets and developing economies would be nearly double that experienced by advanced economies, as noted.
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