IMF cuts Pakistan growth forecast, raises inflation outlook

The International Monetary Fund has lowered Pakistan’s economic growth forecast to 3.5% for the next fiscal year while raising its inflation projection to 8.4%, citing risks stemming from the ongoing Middle East conflict.

In its latest World Economic Outlook, released during the spring meetings, the IMF revised Pakistan’s growth outlook downward from an earlier estimate of 4.1%. For the current fiscal year, growth is expected to remain at 3.6%, broadly in line with projections by other international institutions.

The IMF also increased its inflation forecast for 2026–27 to 8.4%, up from 7% projected earlier, while maintaining the current fiscal year’s estimate at 7.2%. The higher inflation outlook could add pressure on the central bank to maintain or increase interest rates.

Additionally, the Fund more than doubled its projection for Pakistan’s current account deficit to 0.9% of GDP—around $5 billion—for the next fiscal year, reflecting rising external pressures.

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The report highlighted that Pakistan remains particularly vulnerable to developments in the Middle East, as it sources about 90% of its energy imports from the region. Rising oil prices and supply disruptions could further strain the country’s external position.

Globally, the IMF warned that economic growth could slow significantly if the conflict intensifies. Under its baseline scenario, global growth is projected at 3.1% in 2026, but this could drop to 2.5% in an adverse scenario and near 2% in a severe case, raising the risk of a global recession.

The Fund also projected rising global inflation and energy prices, with oil potentially reaching between $100 and $120 per barrel under worst-case scenarios.

The IMF urged governments worldwide to adopt prudent fiscal policies, enhance trade cooperation, and address domestic imbalances to maintain economic stability amid growing uncertainties.