IMF Lowers Pakistan’s FY26 GDP Growth Forecast to 3.6%, Below 4.2% Target

On July 30, 2025, the International Monetary Fund (IMF) projected Pakistan’s GDP growth for the fiscal year 2025-26 at 3.6%, significantly lower than the government's ambitious target of 4.2%. This forecast was released in the IMF’s latest World Economic Outlook Update titled “Global Economy: Tenuous Resilience amid Persistent Uncertainty.” The report also slightly adjusted Pakistan’s growth estimate for the recently concluded fiscal year 2024-25 to 2.7%, an increase of 0.1 percentage points. This figure closely aligns with the Finance Division’s assessment, which reported a real GDP growth of 2.68% for FY25 in its June economic outlook.

The IMF's projection of 3.6% growth aligns closely with forecasts from other international financial institutions. The World Bank expects a growth rate of 3.1% for FY26, while the Asian Development Bank (ADB) anticipates a 3.0% growth rate. Notably, the ADB has also revised its FY25 estimate upward from 2.5% to 2.7%, reflecting a trend of cautious optimism among multilateral development partners.

In the broader context, the IMF has raised its global growth forecast for 2025 to 3.0%, up by 0.2 percentage points from its previous estimate in April. The 2026 outlook has seen a mild increase to 3.1%. These revisions are indicative of improved financial conditions worldwide, characterized by preemptive activities ahead of anticipated trade tariffs and a weakening U.S. dollar, along with fiscal support in key economies. Despite these upgrades, the report cautions that global economic resilience remains precarious, with inflation projected to exceed targets in the United States, although easing in other major economies.

Financial markets have exhibited signs of recovery since April, with equity valuations rebounding and corporate credit spreads narrowing. Volatility remains subdued, notwithstanding persistent uncertainties surrounding global trade and shifts in monetary policy. Central banks in advanced economies are following varied paths; while the European Central Bank may still consider one more rate cut, the U.S. Federal Reserve and the Bank of England are likely to ease rates modestly. In contrast, Japan is seen as having a low probability of further tightening.

Meanwhile, local currency yields in emerging markets, including Pakistan, have eased, supported partly by a weaker U.S. dollar and improved capital flows. The U.S. dollar has notably depreciated since April, contributing to the appreciation of several emerging market currencies. Although concerns regarding the dollar's hedging role are emerging, there is currently no widespread evidence of a shift away from U.S. assets among investors. The sentiment towards emerging markets has improved, with renewed capital inflows and expectations that central banks in developing countries may soon have the opportunity to ease monetary policy.

In summary, while the IMF's forecast reflects a modest improvement in Pakistan's economic outlook for FY26, the projected growth rate still represents a challenge for the government’s targets, emphasizing the need for continued economic reform and policy adjustments to foster a more robust economic recovery.