The World Bank has projected Pakistan’s GDP growth to reach 2.8% in fiscal year 2025, up from 2.5% in 2024. However, the Bank cautions that this growth is insufficient to significantly reduce poverty, which has risen from 40.2% in 2023 to 40.5% in 2024, or to improve living standards substantially.
In its latest report, “Pakistan Development Update: The Dynamics of Power Sector Distribution Reform,” released on Thursday, the World Bank noted that economic activity in 2024 was bolstered by strong agricultural output, lower inflation, prudent macroeconomic measures, and reduced political uncertainty following a recession in 2023.
Despite these improvements, the report highlights significant risks, including the need for the new IMF-EFF program to stay on track, continued fiscal restraint, and access to additional external financing. Potential policy slippages and reform reversals could undermine business confidence and exacerbate external financing challenges.
The report identifies high external financing needs, modest foreign exchange reserves, and geopolitical instability as major risks. It warns that without substantial reforms, economic growth will only marginally improve incomes and living standards, leaving poverty levels largely unchanged.
The World Bank emphasizes the importance of structural reforms, including tax system improvements, expenditure reductions, and energy sector losses, to sustain economic recovery. It also stresses the need for a strong national political consensus and increased private sector participation to support growth and poverty reduction.
Agricultural growth is expected to slow to 1.9% in FY 2025 due to a high base effect, with medium-term growth projected at 2.4%. The industrial sector is anticipated to recover, growing at 3.1% in FY 2025, while the services sector is expected to expand by 3.0%, driven by a revival in trade and transport.
Inflation is forecast to average 11.1% in FY 2025, decreasing to 9.0% in FY 2026, as macroeconomic policies remain tight. The State Bank of Pakistan has already reduced the policy rate, with further cuts likely as inflation moderates.
The current account deficit is expected to widen to 0.6% of GDP in FY 2025, with imports growing faster than exports. Despite this, gross reserves are projected to improve slightly, supported by IMF-EFF inflows.
The fiscal deficit is projected to rise to 7.6% of GDP in FY 2025 before decreasing as fiscal consolidation measures take effect. Public debt is expected to reach 73.8% of GDP in FY 2025, highlighting the need for sustained fiscal reforms to ensure debt sustainability.
