According to a recent report by the United Nations, Pakistan’s economy is set to experience a modest growth, with projections estimating a 3.4% increase in GDP for 2025, followed by a rise to 4.2% in 2026. Released on Thursday, the report titled “The World Economic Situation and Prospects” outlines that this growth is a result of a continued recovery from the economic slowdown experienced during 2022-2023.
The UN report further highlights a positive near-term outlook for South Asia, which is expected to remain strong. After a projected growth of 5.9% in 2024, the region’s GDP is forecasted to increase by 5.7% in 2025 and 6% in 2026, bolstered by robust economic performance in India and rebounds from other countries like Bhutan, Nepal, Pakistan, and Sri Lanka.
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However, the report also warns of potential risks that could hinder this outlook. These include the possibility of escalating geopolitical tensions, slowing external demand, ongoing debt issues, and social unrest. Additionally, the region’s vulnerability to climate change poses a serious threat due to extreme weather events.
The UN anticipates global economic growth will remain steady at 2.8% in 2025. Notably, easing inflation in South Asia has allowed many central banks, including Pakistan’s State Bank, to either pause monetary tightening or reduce interest rates in 2024.
Since the pandemic, interest payments in Pakistan have surged, particularly due to high levels of debt and low government revenue. In light of this, the report points out that the International Monetary Fund (IMF) approved a new, expanded program for Pakistan in September 2024. This Extended Fund Facility aims to assist the country in tackling structural issues, achieving economic stability, and promoting sustainable growth, with a focus on reforming state-owned enterprises and enhancing climate resilience.
Inflation in Pakistan is expected to remain high, forecasted to be 10.1% in 2025, before tapering off to 8.3% in 2026. In South Asia, average consumer price inflation is predicted to decline from an estimated 9.9% in 2024 to 8.3% in 2025 and further down to 7.2% in 2026.
