By Staff Reporter
KARACHI: The International Monetary Fund expects Pakistan’s economy to grow 3.6% for the current fiscal year, even as it projected higher inflation and a widening current account deficit, though the estimates exclude the still-unassessed damages from recent floods.
The outlook, detailed in the IMF’s flagship World Economic Outlook report released Tuesday at the start of the annual meetings with the World Bank, comes after a two-week review of Pakistan’s economy. It marks a more optimistic view than the World Bank’s earlier assessment this month, which pegged growth at 2.6% and inflation at 7.2% based on its own flood-damage estimates.
The IMF’s projections for Pakistan show consumer price index-based average inflation climbing to 6% this year from 4.5% last year, with the current account balance flipping from a 0.5% surplus to a 0.4% deficit. However, the fund stressed that its figures “do not yet reflect the impact of flooding in summer 2025, whose impact is still being assessed,” rendering the estimates tentative.
Globally, the IMF sees economic growth easing from 3.3% in 2024 to 3.2% in 2025 and 3.1% in 2026. While that’s an upgrade from July’s estimates, it falls 0.2 percentage point short of the forecast from October last year, prior to shifts in global trade policies. “On an end-of-year basis, global growth is projected to slow down from 3.6pc in 2024 to 2.6pc in 2025,” the report stated.
Advanced economies are expected to expand by about 1.5% in 2025-26, with the US decelerating to 2%, while emerging markets and developing economies moderate to just above 4%. Global inflation is forecast to drop to 4.2% in 2025 and 3.7% in 2026.
World trade volume is projected to grow at an average 2.9% in 2025-26, lifted by front-loading in 2025 but still lagging the 3.5% pace from 2024 amid ongoing trade fragmentation. “Risks to the outlook remain tilted to the downside,” the IMF said, cautioning that prolonged policy uncertainty could curb consumption and investment. It warned that further escalation of protectionist measures, including non-tariff barriers, could suppress investment, disrupt supply chains, and stifle productivity growth.
The report flagged larger-than-expected shocks to labour supply—especially from restrictive immigration policies—as a drag on growth in economies grappling with ageing populations and skill shortages. Fiscal vulnerabilities and financial market fragilities could amplify with higher borrowing costs, heightening rollover risks for sovereigns.
An abrupt repricing of tech stocks might erupt from underwhelming earnings and productivity gains tied to artificial intelligence, potentially halting the AI-driven investment surge, the IMF added. The fund urged countries to tackle strains on public finances. “With lower growth prospects, higher real interest rates, elevated debt levels, and new spending needs—such as defence and national security—the fiscal equation is becoming more challenging to solve and leaves countries vulnerable should a large external shock occur,” it warned.
Low-income countries face heightened risks from dwindling official aid flows, the IMF noted. For many nations, scarce job opportunities could spark social unrest, especially among unemployed youth. The report also spotlighted pressures on policy institutions, including central banks in places like Pakistan. “Should these pressures succeed, many of the hard-won credibility gains achieved in policymaking over many decades could be lost,” it cautioned. “Trust in central banks and in their ability to deliver price stability allows inflation expectations to remain well anchored, even when the economy is hit by large shocks such as during the recent cost-of-living crisis.”
To counter these threats, the IMF recommended policies that restore confidence and predictability, stabilise trade relations, cut uncertainty, and credibly rebuild fiscal space. Monetary policy should stay independent and transparent, focused on price stability. Longer-term, economies need to prioritise innovation, productivity, and multilateral cooperation, the fund said, empowering private enterprise through broad policies like education, infrastructure, and smart regulation rather than costly sectoral subsidies.
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