World Bank projects 4.2% Pakistan growth, urges flexible rupee
The World Bank has projected 4.2% economic growth for Pakistan in fiscal year 2027-28 and 4.4% in the election year, while urging the government to publish and implement a medium-term fiscal plan to hold macroeconomic stability through the end of the current International Monetary Fund programme in September 2027 and the national elections scheduled for early 2029. In its Pakistan Development Outlook, the Washington-based lender said growth in the medium term was unlikely to exceed 4.5%, too low to absorb the 3.6 million people reaching working age each year.
For the current fiscal year the bank projected 3.8% growth, slightly below the government's 4% target, with elevated commodity and energy prices expected to weigh on services and industry. "The growth rate in the medium term does not seem going beyond 4.5%, which is too low to create enough jobs," said Sebastian Essl, lead author of the report. The outlook assumes the economy will continue to be affected by the conflict in the Middle East through end-2026, with a gradual de-escalation over 2027.
The report examined Pakistan's exchange rate policy at length, arguing that central bank intervention creates temporary stability but leads to disruptive adjustments. The bank said stability in the face of these shocks suggested that the exchange rate was not responding freely to market conditions, adding that a fully flexible, market-determined rate would buffer external shocks, support private sector confidence and prevent a gradual erosion of competitiveness. It noted the rupee averaged Rs280.4 per dollar in FY26 against Rs279.4 the previous year, while the real effective exchange rate appreciated 10% between end-June 2025 and July 2026 on higher inflation and deteriorating terms of trade.
Bolormaa Amgaabazar, World Bank Country Director for Pakistan, said the country had made real progress in restoring stability and that markets had taken notice, but real per capita growth remained stuck at around 1.6%. The report said reforms lifting policies and institutions to the quality of the average middle-income country could drive sustained growth of 6.2-6.9% a year, sufficient to reach Vietnam's current income level by 2050. It also flagged poverty rising from 22% in 2019 to 29% in 2025.
The lender identified a more prolonged and intense Middle East conflict as the most significant risk to the near-term outlook, citing a higher import bill, weaker export demand and pressure on reserves. It projected the current account deficit widening this fiscal year as import growth outpaces exports, with remittances a key offset, and estimated external financing needs averaging around 5% of GDP in the near term.
