The World Bank has lowered Pakistan’s economic growth forecast to 3 percent for the current fiscal year, citing the fallout from the Middle East conflict and its impact on oil prices, remittances, and external demand.
The revised estimate is notably below the 4 to 4.5 percent growth range that Islamabad had recently shared with the International Monetary Fund.
In its latest regional economic update, the World Bank also warned that Pakistan’s current account deficit could widen to 1.2 percent of GDP, equivalent to about $4.9 billion.
This is nearly $3 billion higher than the $2 billion estimate earlier presented by the government to the IMF. The lender said the higher deficit outlook is driven mainly by rising energy import costs and weaker remittance inflows from the Gulf.
The report said inflation is now expected to reach 7.4 percent this fiscal year, remaining within the government and State Bank of Pakistan target range but still reflecting the inflationary pressure created by elevated oil and gas prices. It also warned that higher fertilizer costs could affect future crop yields and push food prices upward.
According to the report, Pakistan is among the economies facing indirect but significant spillover effects from the regional conflict, alongside Egypt and Jordan. These risks include energy shortages, slower remittance growth, and financial market pressure, with Pakistan’s sovereign bond spread rising from 3.9 percent to above 5 percent within a month.
The World Bank also projected that Pakistan’s budget deficit may widen to 4.3 percent of GDP, although still lower than last year.