The World Bank has lowered Pakistan’s economic growth forecast to 3 percent for the current fiscal year, citing the fallout from the ongoing Middle East conflict and its impact on oil prices, remittances, and external demand.

The revised projection is significantly below the 4 to 4.5 percent growth range that Islamabad had recently shared with the International Monetary Fund during ongoing economic consultations.

In its latest regional economic update, the World Bank also warned that Pakistan’s current account deficit could widen to 1.2 percent of GDP, equivalent to about $4.9 billion. This estimate is nearly $3 billion higher than the $2 billion figure earlier presented by the government to the IMF.

According to the report, the weaker external outlook is largely driven by rising energy import costs and slower remittance inflows from Gulf countries, both of which are linked to regional instability.

The lender further projected that inflation could average 7.4 percent this fiscal year. While this remains within the target range set by the government and the State Bank of Pakistan, the report warned that elevated oil and gas prices and higher fertilizer costs could increase pressure on food prices and affect future crop yields. 🌾

The World Bank noted that Pakistan is among the countries facing indirect but significant spillover risks from the regional conflict, alongside Egypt and Jordan. These risks include potential energy shortages, slower remittance growth, and financial market pressures. Pakistan’s sovereign bond spread, the report noted, rose from 3.9 percent to above 5 percent within a month, reflecting heightened investor concerns.

Despite these challenges, the World Bank projected that Pakistan’s budget deficit may widen to 4.3 percent of GDP, though it would remain lower than last year’s level.