Pakistan’s economic growth outlook remains clouded by uncertainty, with major multilateral institutions offering different projections for the current fiscal year.
The Asian Development Bank has forecast growth at 3.7 per cent, 0.3 percentage points below the government’s target of 4 per cent but broadly in line with the provisional growth rate recorded for 2025-26. The World Bank has placed its projection lower at 3.2 per cent, while the International Monetary Fund expects growth of 3.5 per cent. The differences may appear relatively small, but they are significant for an economy struggling to generate growth substantially above population expansion. They also underline the uncertainty surrounding Pakistan’s economic outlook at a time when policymakers are attempting to preserve macroeconomic stability while creating conditions for stronger economic activity.
According to data available on the Pakistan Bureau of Statistics website, the provisional growth rate for 2025-26 was 3.7 per cent, with the size of the economy estimated at $4,523.1 billion and per capita income at $1,901. The government’s target of 4 per cent growth for the current fiscal year therefore represents only a modest improvement over the previous year.
The variations in the forecasts of the three multilaterals can partly be explained by the different dates on which their assessments were prepared. Each institution would have incorporated its own assumptions regarding global economic conditions, commodity prices and the likely duration and impact of the conflicts in the Middle East and between Russia and Ukraine. Developments in these regions are particularly important for Pakistan because of their potential impact on oil prices, shipping costs, trade flows and external financing conditions.
The projections also depend on assumptions about domestic policy. In particular, the IMF’s assessment is based on the expectation that Pakistan will continue implementing the structural benchmarks and time-bound commitments agreed under its current programme. Many of these measures are intended to strengthen fiscal and external sustainability, but their immediate impact can be contractionary.
This creates a difficult policy challenge. Measures designed to stabilise the economy can simultaneously restrict domestic demand, increase business costs and discourage investment. The government must therefore manage the delicate balance between maintaining the credibility of the stabilisation programme and creating sufficient space for economic expansion. The IMF team is currently in Pakistan for discussions on the fourth quarterly review under the ongoing programme as well as the third review of the Resilience and Sustainability Facility. A staff-level agreement will be required before the IMF staff can submit the review to the Fund’s Executive Board for approval of the next tranche.
One issue that could feature prominently in the discussions is the recently introduced concession on petroleum products for motorcycles and cars with engines below 800cc. The relief is estimated to involve around Rs75 billion, equivalent to approximately 4.4 per cent of the total petroleum levy collection targeted in the budget. The amount may not appear large in the context of the overall budget, but any shortfall in petroleum levy revenues would have to be addressed through some combination of additional taxation, higher prices or expenditure reductions. Cutting development spending could provide an immediate fiscal adjustment, but it would also carry consequences for economic growth because the Public Sector Development Programme supports infrastructure and other productive investments.
The challenge becomes more complicated when the performance of the industrial sector is examined. The increase in overall GDP growth during 2025-26 was supported significantly by industry, whose growth rate reportedly rose from 1.96 per cent in 2024-25 to 6.61 per cent in 2025-26. On the face of it, this represents a substantial improvement and appears to provide an important basis for the higher overall growth rate. However, the large-scale manufacturing sector has challenged the strength of this recovery. Industrialists, particularly in textiles, have argued that rising input costs have placed considerable pressure on manufacturers. They have attributed part of the increase to administrative measures linked to IMF programme requirements, including tariff adjustments intended to move towards full cost recovery in the energy sector.
The availability of credit is another concern. Data reported by the Finance Division show that credit flows to the private sector were negative Rs232.1 million during the comparable period in 2025 and deteriorated further to negative Rs393.4 million during the corresponding period this year. Weak private-sector credit can constrain investment and expansion at precisely the time when Pakistan needs businesses to increase productive capacity.
The textile sector has also reported the closure of more than 100 units, citing high input costs and difficult operating conditions. Such claims need to be assessed against comprehensive industrial data, but they raise legitimate questions about the sustainability of the manufacturing recovery. If some segments of industry are expanding while major export-oriented sectors are contracting or shutting down production units, headline industrial growth may not fully capture the pressures being experienced across the manufacturing base.
The inflation outlook presents a somewhat different picture. The three multilateral institutions are relatively close in their forecasts, with the ADB projecting inflation at 8.3 per cent, the World Bank at 8.2 per cent and the IMF at 8.4 per cent for the current fiscal year. Their greater convergence on inflation compared with growth suggests that there is somewhat more agreement about the direction of price pressures.
Domestic data, however, underline the risks surrounding those projections. Inflation increased to 9.2 per cent in July and further to 11.2 per cent in August. If elevated inflation persists, the annual rate could exceed the projections made by the multilaterals. The State Bank of Pakistan, meanwhile, has retained its medium-term inflation projection of 5 to 7 per cent and has kept the policy rate at 11.5 per cent. The central bank’s assessment provides room to avoid further monetary tightening, but a sustained acceleration in inflation could make that position increasingly difficult to maintain.
These competing indicators demonstrate why economic forecasts should be treated as estimates rather than certainties. Growth projections can change rapidly when oil prices rise, geopolitical tensions intensify, external financing conditions deteriorate or domestic policy changes. Similarly, inflation forecasts can be overtaken by supply shocks, exchange-rate movements and changes in energy prices.
The government should therefore avoid treating any single forecast as a guaranteed outcome. The more important task is to ensure that economic statistics accurately reflect conditions on the ground. Reliable data are essential not merely for international credibility but for domestic policymaking. If official indicators understate emerging weaknesses, policymakers may respond too late to problems that could have been addressed at an earlier stage.
Pakistan needs timely and transparent information on industrial production, private investment, employment, inflation, exports, imports and external financing. Differences between official estimates and conditions reported by businesses should be investigated rather than dismissed.
Ultimately, the objective should not be to produce statistics that support an optimistic narrative, nor to assume that every forecast will be achieved. Economic projections are useful precisely because they provide policymakers with an early indication of potential risks. The government should use them as warning signals and adjust policies when the underlying evidence changes.
The current forecasts suggest that Pakistan can expect modest growth, but none points to a rapid economic expansion. With inflation again rising and industrial businesses facing higher costs, the challenge is to protect the gains of stabilisation without suppressing the investment and productivity needed for stronger growth. Accurate statistics, realistic forecasts and timely policy responses will be essential if Pakistan is to turn modest recovery into sustainable economic expansion.