Pakistan Needs Sustained Reforms for Inclusive Growth and Flood Recovery: World Bank

Pakistan’s economy grew by 3.0 percent in the fiscal year ending June 2025, up from 2.6 percent the previous year, according to the World Bank’s latest Pakistan Development Update. The report, “Staying the Course for Growth and Jobs,” highlights a rebound in industrial activity and expansion in the services sector, but warns that growth will remain at 3 percent in the coming year due to the lingering impacts of recent floods on agriculture. The World Bank projects that growth could pick up in the medium term if Pakistan maintains macroeconomic stability and continues with key reforms. Fiscal tightening and prudent monetary policy have helped anchor inflation and support current account and fiscal surpluses, despite a challenging global environment. Improved business confidence has supported industry and services, but agriculture has lagged due to adverse weather and pest infestations. “Pakistan’s recent floods have imposed significant human costs and economic losses, dampening growth prospects and adding pressure on macroeconomic stability,” said Bolormaa Amgaabazar, World Bank Country Director for Pakistan. She emphasized the need for continued reforms, job creation, and stronger social safety nets to ensure sustainable development and resilience. The report notes that the immediate and ongoing effects of the floods are expected to weigh on growth, with real GDP growth projected to remain at 3.0 percent in FY26. Growth is forecast to rise to 3.4 percent in FY27, provided that macroeconomic stability and reform momentum are sustained. However, tight fiscal policies and vulnerability to climate shocks may constrain further gains. “Sustaining progress will require a balanced mix of revenue and expenditure measures to manage flood impacts while maintaining progress towards fiscal consolidation,” said Mukhtar Ul Hasan, lead author of the report. He called for urgent fiscal reforms, including broadening the tax base, strengthening tax administration, and reducing the state’s role in the economy. A special chapter in the report highlights the critical role of exports in achieving long-term growth and stability. Pakistan’s exports have fallen from 16 percent of GDP in the 1990s to around 10 percent in 2024, making the economy more dependent on debt and remittances. The report identifies high tariffs, complex regulations, and costly energy and logistics as key barriers to export growth, but notes that recent tariff reforms are a positive step. Anna Twum, co-author of the report, said, “The government has placed export growth at the center of its development agenda and has made important strides in tackling policy and structural barriers, most recently through the approval of the National Tariff Policy.” She added that further measures are needed, including a market-determined exchange rate, stronger trade finance, and expanded access to export markets. The World Bank urges Pakistan to accelerate reforms and invest in infrastructure, social protection, and export competitiveness to achieve inclusive and sustainable growth, especially in the wake of recent natural disasters.