The International Monetary Fund (IMF) has raised its inflation forecast for Pakistan to 9.9 percent for fiscal year 2026-27, putting it well above the government’s target of 8.2 percent.
In its latest World Economic Outlook (WEO), released on Tuesday during its annual meetings, the IMF also kept Pakistan’s economic growth forecast at 3.5 percent, below the government’s target of 4 percent.
The revised inflation projection is up from the IMF’s earlier estimate of 8.4 percent, which it maintained in its July report.
The new forecast also challenges the government’s expectation that inflation will remain within its official target. During recent discussions with the IMF, the federal government and the State Bank of Pakistan expressed confidence that the 8.2 percent target could be achieved despite rising price pressures.
The IMF did not explain the specific reasons behind its revised forecast for Pakistan. However, it raised inflation projections for the Middle East and Central Asia as disruptions to energy supplies and higher prices linked to the ongoing war in the Middle East put pressure on the global economy.
Higher inflation could complicate monetary policy decisions as authorities attempt to contain price increases. Pakistan has been passing higher fuel costs on to consumers while collecting substantial taxes on petroleum products.
The government has introduced monthly payments of Rs. 2,000 for motorcyclists and Rs. 3,000 for small car owners to provide relief from rising fuel costs. However, the IMF has criticised the scheme as broad-based and expensive.
The Fund also reported that global headline inflation increased in August as energy prices recovered following a brief ceasefire in the Middle East.
IMF Keeps Pakistan Growth Forecast at 3.5%
The IMF maintained its forecast for Pakistan’s economic growth at 3.5 percent for FY27, leaving it below the government’s 4 percent target.
Finance Minister Muhammad Aurangzeb recently told Reuters that he remained confident the economy would grow by more than 4 percent during the fiscal year.
Pakistan has pursued economic stabilisation through successive IMF programmes. However, the World Bank has identified the prolonged stabilisation process as one of the factors contributing to rising poverty.
Planning Minister Ahsan Iqbal has called for a fiscal framework that supports economic growth and development alongside stabilisation. In a recent memorandum to Prime Minister Shehbaz Sharif, he argued that Pakistan was increasingly relying on development spending cuts and additional borrowing instead of expanding its tax base and exports.
Iqbal also warned that voters would assess the government in 2029 based on economic performance, including employment, incomes, investment, exports, inflation, energy costs and economic opportunities.
IMF Expects Pakistan’s Current Account Deficit to Widen
The IMF has projected Pakistan’s current account deficit at 1 percent of gross domestic product, equivalent to around $4.4 billion. The estimate is approximately $450 million higher than its previous forecast.
The Fund also revised its outlook for the Middle East and Central Asia, where it expects economic growth to slow to 0.3 percent in 2026 before recovering to 6.3 percent in 2027.
The projections reflect the risk that disruptions to the Strait of Hormuz could last longer than previously expected, affecting energy supplies and trade before a subsequent recovery.
IMF Projects Global Growth of 3.1% in 2026
The IMF expects the global economy to grow by 3.1 percent in 2026 and 3.4 percent in 2027, broadly maintaining its outlook from April.
Global headline inflation is projected to reach 4.7 percent in 2026 before easing to 4.1 percent in 2027. The Fund expects the impact on core inflation to remain limited.
According to the IMF, global economic activity performed better than expected in the first half of 2026 despite the war in the Middle East and continued trade tensions. Investment in artificial intelligence also supported demand.
However, the Fund warned that the global economy remains vulnerable to further shocks. Falling energy inventories and renewed geopolitical disruptions could push prices higher and interrupt supply chains, particularly in countries dependent on imported energy.
