Key Takeaways
- The IMF has projected Pakistan's economy to grow by 3.5 percent in FY27, below the government's target of 4 percent.
- Available evidence suggests that growth momentum was already established before the external shock from the Middle East conflict.
- Recent revisions to national accounts have generally been upward, indicating a stronger economic performance.
The International Monetary Fund (IMF) has projected Pakistan's economy to grow by 3.5 percent in fiscal year 2027 (FY27), compared with the government's target of 4 percent. However, experts argue that this projection may be underestimating the true pace of economic growth, particularly given the existing momentum before external shocks.
The IMF’s forecast is based on assumptions that higher commodity prices, tighter financial conditions, and weaker external demand due to the Middle East conflict will suppress domestic activity. Its staff report estimates that these factors will reduce Pakistan's FY27 growth by 0.6 percentage points, lowering the earlier programme projection from 4.1 percent to 3.5 percent.
Despite these projections, recent data from the Pakistan Bureau of Statistics (PBS) and the State Bank of Pakistan (SBP) paint a different picture. PBS estimates show that GDP expanded by 3.92 percent in the first quarter of FY26, 4.05 percent in the second quarter, and 3.99 percent in the third quarter. The government’s provisional full-year estimate of 3.7 percent sits below these figures and remains susceptible to upward revision.
The SBP's February Monetary Policy Report initially raised the FY26 growth range to 3.75-4.75 percent, expecting further growth in FY27. Although the Bank subsequently shifted its FY26 assessment towards the lower end of that range following regional conflicts, it maintained an underlying diagnosis of sustained momentum in industrial activity, construction, private credit, and aggregate demand.
Manufacturing output has continued to rise, with large-scale manufacturing expanding by 6.44 percent during July-April FY26, and April output still 6.06 percent higher than a year earlier (YoY). Private-sector credit has been expanding across working capital, fixed investment, and consumer financing. The SBP reported that credit to private businesses increased by Rs862 billion during the first half of FY26, well above the average recorded over the preceding five years.
The effects of 1,150-basis-point monetary easing since June 2024 are also still working their way through credit and investment decisions. With headline inflation standing at 11.1 percent in June and wholesale prices 10.7 percent higher than a year earlier, the ex-post real policy rate has narrowed almost to zero. Core inflation remains elevated, indicating that financial conditions are considerably less restrictive for businesses experiencing higher sales, inventory values, and working capital.
These developments suggest that Pakistan’s economy is entering an upswing, with growth momentum already established before external shocks. The IMF's projection may therefore be overly cautious, underestimating the true potential of the Pakistani economy.
