The World Bank has lowered Pakistan’s economic growth forecast to 3 per cent for the fiscal year, citing adverse spillover effects from the ongoing Middle East conflict and rising global energy prices.
The revised projection is significantly lower than the 4 to 4.5 per cent growth estimate earlier shared by the government with the International Monetary Fund.
Growth Outlook Revised Downward
In its latest regional economic update, the World Bank reduced Pakistan’s GDP growth forecast by 0.4 percentage points, bringing it close to last year’s growth level.
The report attributes the downgrade to economic uncertainty triggered by the conflict involving the United States, Israel and Iran, which has disrupted global markets and increased volatility in oil prices.
Officials noted that higher fuel costs and weaker external demand are expected to weigh on Pakistan’s economic recovery.
Current Account Deficit Expected to Widen
The World Bank warned that Pakistan’s current account deficit (CAD) could expand to 1.2 per cent of GDP, equivalent to around $4.9 billion.
This projection is nearly $3 billion higher than the government’s earlier estimate of $2 billion provided to the IMF, reflecting rising import costs and lower remittance inflows.
The lender said increased energy import bills and declining financial inflows from overseas Pakistanis are key factors behind the widening deficit.
Inflation and Energy Prices Remain Key Risks
The report projected inflation at 7.4 per cent for the current fiscal year, remaining within the target range set by authorities but still posing risks to economic stability.
The World Bank cautioned that persistently high prices of oil and natural gas could trigger broader inflationary pressures across multiple sectors.
Brent crude oil prices surged to around $112 per barrel during the conflict period, significantly higher than pre-war levels, increasing pressure on energy-importing countries like Pakistan.
Impact on Key Economic Indicators
The report highlighted that Pakistan’s GDP per capita is expected to grow by 1.4 per cent, indicating modest improvement in living standards.
However, rising input costs, particularly fertilisers, could affect agricultural output and lead to higher food prices in the coming months.
The World Bank also noted that Pakistan’s sovereign bond spread increased sharply within a month, reflecting investor concerns over economic stability.
Regional and Global Context
The World Bank’s report covered the broader Middle East, North Africa, Afghanistan and Pakistan (MENAAP) region, which has been significantly impacted by ongoing conflicts.
Regional growth forecasts were also revised downward, with economic expansion now expected to remain subdued due to geopolitical instability.
Countries like Egypt and Jordan, along with Pakistan, are facing indirect economic pressures through higher energy costs and reduced remittances from Gulf economies.
Fiscal Outlook and Policy Challenges
The report indicated that Pakistan’s budget deficit may widen to 4.3 per cent of GDP, slightly higher than official targets.
However, improved revenue collection, particularly from petroleum levies and central bank profits, could partially offset fiscal pressures.
The World Bank emphasised the need for prudent economic management, warning that central banks may need to keep interest rates higher for longer to contain inflation.
Conclusion
The downward revision of Pakistan’s GDP growth forecast to 3 per cent underscores the country’s vulnerability to global economic shocks, particularly rising energy prices and geopolitical tensions.
While the economy continues to show resilience, challenges such as inflation, a widening current account deficit and external uncertainties remain significant.
The World Bank’s latest outlook highlights the importance of policy stability, fiscal discipline and structural reforms to sustain economic recovery in an increasingly uncertain global environment.