ISLAMABAD: The World Bank (WB) has further reduced its projections for Pakistan’s economy, estimating that real GDP growth will reach only 2.6 percent for FY26 in the aftermath of recent flash floods.
“Early estimates suggest at least a 10 percent drop in agricultural output in Punjab, affecting major crops such as rice, sugarcane, cotton, wheat, and maize. Without broader industrial and services spillovers and assuming a modest increase in development spending, this could reduce FY26 real GDP growth to 2.6 percent,” a World Bank report released on Tuesday revealed.
The WB stated that real GDP growth had been projected to accelerate to 3.4 percent in FY26 and 3.6 percent in FY27, supported by higher agricultural output, lower inflation and interest rates, recovering consumer and business confidence, and a rebound in private consumption and investment.
These gains were expected on the back of tight fiscal and monetary policies aimed at rebuilding buffers and reducing risks from domestic imbalances and global trade.
However, according to the WB, the ongoing catastrophic floods have introduced significant uncertainty, with the full extent of the damage still to be determined. Disrupted food supply, the WB says, may push inflation above 7 percent, higher than previously projected, easing gradually over the medium term. Under the flood scenario, the current account deficit could reach 0.1 percent of GDP in FY26, with remittances and lower oil prices offsetting export losses and higher food imports.
The fiscal deficit could rise to 5.5 percent of GDP with modest flood-related spending. Medium-term deficit reduction will depend on revenue mobilisation, agricultural recovery, interest costs, and rationalising expenditures. Poverty is expected to edge down to 44 percent in FY26 and 43 percent in FY27.
Looking ahead, Pakistan, which has historically maintained high tariffs with a complex structure, stands to benefit in terms of exports and growth from a recently approved five-year reform plan (2025–2030) to reduce its tariffs.
In line with global trends, poverty at the lower-middle-income line in Pakistan dropped by 9.4 percentage points between 2011 and 2018, the year of the most recent available estimate. However, a combination of economic shocks and natural disasters since 2020 is projected to have stalled this trend of poverty reduction.
Experience from Punjab, Pakistan, where reforms to land records and biometric ID verification aimed to protect the inheritance rights of daughters, also shows mixed outcomes. While such reforms reduced the prevalence of disinheritance, they also led to fewer girls being registered for national identity cards, suggesting that families adapted in ways that preserved unequal outcomes. These examples underscore that reforms touching directly on family resources can provoke compensatory responses, making careful design essential.
