The International Monetary Fund (IMF) has downgraded its growth forecast for Pakistan’s economy in its latest World Economic Outlook Update released in January 2026.The Fund now projects GDP growth at 3.2% for the current fiscal year (FY2026), a reduction from the 3.6% estimate provided in its October 2025 report.
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This revision comes amid a global economic environment described as steady but influenced by divergent forces, including technological investments in AI offsetting potential trade headwinds. The IMF also estimates Pakistan’s growth at 3% for 2025, rising to 3.2% in FY2026 and further to 4.1% in FY2027.
This adjustment highlights a gap between international projections and the Pakistani government’s more optimistic target of 4.2% for FY2026.Recent domestic data shows the economy grew by 3.09% in FY2024-25 (as approved by the National Accounts Committee), with a stronger 3.71% expansion in the first quarter of FY2025-26.
Reasons Behind the Downgrade
The IMF’s downward revision for Pakistan appears modest at 0.4 percentage points but reflects cautious global assumptions rather than Pakistan-specific crises detailed in the update. Broader risks include potential reevaluation of AI-driven productivity gains, escalating trade tensions, geopolitical disruptions, and pressures from high public debt or fiscal deficits that could elevate interest rates.
While the report notes global growth holding at 3.3% in 2026 (slightly up from prior forecasts due to tech and AI tailwinds), emerging markets like Pakistan face downside vulnerabilities. No explicit Pakistan-centric reasons (such as inflation spikes, floods, or policy delays) were highlighted, but the conservative outlook aligns with ongoing challenges in sustaining momentum beyond select sectors.
Implications and Broader Context
The lower forecast underscores the divergence between IMF/World Bank views (World Bank sees 3% for FY2025-26, rising to 3.4% later) and Islamabad’s ambitions, potentially complicating budget negotiations and IMF program discussions.
Pakistan continues under its Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF), with recent reviews completed, emphasizing fiscal discipline and reforms. Despite the downgrade, the projected uptick to 4.1% in FY2027 suggests gradual improvement if structural reforms advance, reserves stabilize, and external conditions remain supportive.
Analysts note that achieving higher growth will require addressing FDI declines, current account pressures, and policy consistency to bridge the gap with official targets.