Key Takeaways
- Pakistan accounts for 48% of people living below $3 a day in the MENAAP region.
- Gasoline and diesel prices have increased by over 40% in Pakistan.
- The country faces significant debt and financing challenges.
According to the World Bank, Pakistan is facing severe economic pressures, including higher fuel prices and rising poverty rates. The conflict in the Middle East and North Africa (MENA) region, which began in February 2026, has led to a significant increase in energy costs, particularly gasoline and diesel, across the region, with Pakistan experiencing a 40% or more rise in these prices.
The World Bank's latest regional economic update, titled 'From Divide to Opportunity: AI, Jobs, and Growth,' highlights that Pakistan's poverty rate has increased by 6.4 percentage points at the $3-a-day threshold and 3.2 percentage points at the $4.20-a-day threshold between fiscal years 2018-19 and 2024-25. This increase is attributed to successive economic shocks, including the 2022 floods, high inflation, and prolonged economic adjustment.
Across the MENAAP region, 14.3% of the population lived on less than $3 a day in 2024, compared to 10.4% globally. The World Bank projects that adverse poverty trends will continue through 2026, with poverty increasingly concentrated in conflict-affected and fragile economies. The economic strain is expected to continue, with Pakistan's GDP growth projected at 3.8% in 2027, below the government's target of 4%. Inflation is forecast to rise to 8.2% in 2027 from 7.1% in 2026.
The country's fiscal and current account deficits are also expected to worsen, with the current account deficit forecast to widen to 0.8% of GDP and the fiscal deficit to reach 3.5%. Additionally, Pakistan faces risks from weaker economic activity in Gulf Cooperation Council countries, which could reduce demand for foreign workers and weaken remittance flows to labor-sending economies, particularly Pakistan and parts of the Levant.
Despite these challenges, the World Bank identifies opportunities for Pakistan in artificial intelligence (AI). The country produces an estimated 75,000 IT graduates annually and recorded $4.6 billion in information and communication technology services exports in fiscal year 2025-26. Its planned $1 billion AI program through 2030 includes shared computing infrastructure, a sovereign multilingual model, 1,000 AI PhD scholarships, and training for one million non-IT professionals.
However, the Bank warns that Pakistan's AI ambitions could be held back by weak innovation, gaps in broadband and electricity access, and limited local-language training data. Only 3% of firms reported product innovation, and 1% reported process innovation. The country is also exposed to climate risks, with changing monsoon patterns, heat stress, irregular rainfall, drought, and localized flooding threatening agricultural output.
In conclusion, while Pakistan faces significant economic challenges, the World Bank's report highlights potential opportunities in AI and calls for targeted interventions to mitigate the adverse effects of economic pressures and climate risks.
