The International Monetary Fund (IMF) has warned that the heavy rains and floods expected in the third quarter of 2025 could have a more negative impact on Pakistan’s economic growth, inflation, and current account than current estimates suggest, although the extent of these effects remains highly uncertain.
In its latest report, Regional Economic Outlook: Middle East and Central Asia – Resilience Amid Uncertainty: Will It Last?, the IMF stated that inflation in Pakistan has declined this year due to lower food and energy prices. However, it is expected to rise again in 2026 as prices normalize and temporary electricity subsidies are phased out.
According to the report, Pakistan’s growth rate could reach 3.6% in 2026, supported by sustained reforms, improved financial conditions, and stronger confidence. Exports are projected to increase from USD 40.7 billion in 2025 to USD 42.1 billion in 2026, while imports are expected to grow from USD 70.1 billion to USD 74 billion during the same period. The government’s fiscal deficit is estimated to narrow to -4.1% of GDP in 2026, compared to -5.3% in 2025. Total external debt is expected to rise from USD 30.1 billion to USD 30.6 billion, and official foreign reserves are projected to grow from USD 14.5 billion to USD 17.7 billion.
The IMF also cautioned that rising debt costs could exacerbate fiscal and financial challenges across the region, particularly in countries where governments rely heavily on domestic borrowing and the banking sector holds large amounts of government bonds — such as Pakistan, Algeria, and Egypt. The report noted that fiscal balances among oil-importing countries in the Middle East, North Africa, Afghanistan, and Pakistan are expected to improve, thanks to tax reforms and reduced energy subsidies keeping expenditures in check.
The report highlighted that ongoing reforms have played a key role in maintaining economic stability across the MENAP and CCA regions. These include tax and energy sector reforms in Pakistan, energy price reforms in Uzbekistan, and economic diversification projects in Jordan, Morocco, and Saudi Arabia. Nonetheless, it emphasized that further progress is needed in several areas.
Despite global uncertainty and geopolitical tensions in 2025, the MENAP and CCA economies are expected to remain relatively stable. Even after the end of the 90-day U.S. tariff suspension, tariff levels remained limited to 10–15%, with only a marginal effect on exports since these regions account for just 4.5% of U.S. market trade — and oil products are exempt from the new tariffs.
In Pakistan, remittance inflows continued to rise, while the impact of floods, strong domestic demand, lower energy prices, tourism, and improved agricultural output helped stabilize economic activity. At a press conference, Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, said that regional economies are performing better than expected in 2025, and the effects of U.S. tariffs and geopolitical tensions have been short-term. Pakistan’s growth is projected to reach 3.2% in 2025, up from 2.1% in 2024, supported by robust reforms and strong domestic demand.
