Pakistan eyes over 4% growth in 2026 as financing needs remain a challenge

Pakistan is targeting economic growth of more than 4 per cent in 2026, Finance Minister Muhammad Aurangzeb said, as the country seeks to strengthen its economic outlook while managing financing needs, inflation and persistent poverty.

Aurangzeb discussed Pakistan’s financing requirements and economic growth outlook with Avril Hong on the sidelines of the International Monetary Fund (IMF) and World Bank annual meetings in Singapore, Bloomberg News reported.

The target comes as Pakistan continues to face pressure to translate economic stabilisation into stronger growth and higher household incomes. Higher energy costs and geopolitical tensions in West Asia have added to the challenges facing the economy, raising concerns about inflation, import bills and the country’s external financial position.

World Bank sees Pakistan growing 3.8% in FY27

Pakistan’s growth ambition comes against a cautious outlook from the World Bank. The lender projects the country’s economy to expand by 3.8 per cent in the 2026-27 fiscal year, with inflation expected to rise to 8.2 per cent.

The World Bank has warned that sustained high energy prices, public debt-servicing costs and limited progress on structural reforms could constrain growth. It has also flagged the risk of a prolonged conflict in West Asia and adverse weather conditions affecting economic stability.

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The World Bank’s forecast is for a fiscal year, while Aurangzeb’s stated target refers to 2026. The two figures therefore cover different periods and should not be treated as directly comparable.

Pakistan’s financing needs remain a key concern as the government seeks to maintain economic stability while supporting activity. The country must also manage its current account and fiscal balances as higher import costs threaten to put pressure on public finances and foreign exchange requirements.

Poverty remains a major economic challenge

The growth target also comes amid concerns about living standards. A World Bank report released in October found that Pakistan accounts for 48 per cent of people living below the $3-a-day poverty threshold across the Middle East, North Africa, Afghanistan and Pakistan (MENAAP) region.

Pakistan’s poverty rate increased by 6.4 percentage points at the $3-a-day threshold between 2018-19 and 2024-25. The increase followed a series of shocks, including the Covid-19 pandemic, devastating floods in 2022, high inflation, currency depreciation and a prolonged period of economic adjustment that weakened household incomes and employment opportunities.

The MENAAP region accounts for 14 per cent of the world’s extreme poor, second only to Sub-Saharan Africa. The World Bank said it was the only region where poverty remained above pre-pandemic levels and continued to rise.

The lender also projected that Pakistan’s real GDP per capita would grow by 2.2 per cent in FY27, only a modest improvement from 2.1 per cent in the previous fiscal year. This suggests that gains in overall economic output may translate into limited improvements in average incomes.

Energy prices add to financing pressures

Pakistan remains vulnerable to higher global energy prices because it relies on imported fuel. Rising oil prices can increase the country’s import bill, put pressure on inflation and make it harder to improve its external financial position.

The World Bank has identified higher commodity prices, weaker remittance flows from Gulf economies and increased borrowing costs as risks for oil-importing countries, including Pakistan.

Remittances are an important source of foreign exchange for Pakistan, with many of its workers employed in Gulf economies. A prolonged slowdown in sectors such as construction, tourism and hospitality could weaken employment and income flows to workers and their families back home.

The government faces the challenge of protecting vulnerable households from rising living costs without putting additional pressure on public finances. The World Bank has pointed to targeted assistance for households and farmers as an alternative to broad subsidies.