ISLAMABAD: The International Monetary Fund (IMF) on Friday acknowledged signs of recovery in Pakistan’s economy after approving the latest tranche under its loan programme, but warned that the ongoing conflict in the Middle East poses a major external risk to the country’s fragile economic outlook.
Growth and Inflation Projections
In its detailed review report released after clearing the latest disbursement, the IMF said that economic activity accelerated during the first half of fiscal year 2026, with growth showing signs of improvement amid tighter macroeconomic policies. The lender projected Pakistan’s gross domestic product (GDP) growth at 3.6 percent by the end of the current fiscal year, while average inflation was expected to remain around 7.2 percent.
According to the report, the State Bank of Pakistan played a key role in containing inflation through timely and tight monetary policy measures. The IMF said that Pakistan’s current account remained broadly balanced, while foreign exchange reserves improved more than expected, reaching 16billionbytheendofDecemberwithpotentialtorisefurtherto17.5 billion.
Middle East War as Major External Threat
Despite the improving indicators, the IMF identified the Middle East war as one of the most significant external threats facing Pakistan’s economy. “The war weighs on the near-term outlook as Pakistan is highly exposed to energy imports and remittances from the Gulf countries as well as to global financial conditions,” the IMF staff report said.
The lender noted that 81 percent of Pakistan’s fuel imports originate from Gulf Cooperation Council (GCC) countries, while 55 percent of remittances — equivalent to around nine percent of GDP — come from the same region. “A significant disruption to the GCC economies and, or return of migrant workers could weigh on these flows, a major source of financing for consumption and the balance of payments,” the report warned.
Economic Impact Scenarios
Under the Fund’s baseline scenario, Pakistan’s GDP growth could slow by 0.2 percentage points in fiscal year 2026 and by 0.6 percentage points in FY27 due to the conflict, while inflation could rise by around half a percentage point this year and 1.5 percentage points next year. The IMF said consistent implementation of strong economic policies had helped stabilise Pakistan’s economy, but cautioned that continued reforms remain essential amid an increasingly uncertain global environment.
