IMF trims Pakistan’s FY26 growth forecast to 3.6%, below govt target of 4.2%

July 30, 2025 (MLN): The International Monetary Fund (IMF) has projected Pakistan’s GDP growth at 3.6% for the ongoing fiscal year 2025–26, falling short of the government’s ambitious 4.2% target.

The forecast was issued in the Fund’s latest World Economic Outlook Update titled “Global Economy: Tenuous Resilience amid Persistent Uncertainty.”

While the outlook for FY26 signals modest improvement, the IMF has also slightly revised Pakistan’s growth estimate for the recently concluded FY25 to 2.7%, up by 0.1 percentage point.

This revised figure is nearly in line with the Finance Division’s assessment, which reported a real GDP growth of 2.68% for FY25 in its June economic outlook.

The IMF’s projection aligns closely with other development partners. The World Bank expects Pakistan’s economy to expand by 3.1% in FY26, while the Asian Development Bank (ADB) anticipates 3.0% growth.

ADB has also nudged its FY25 estimate upward to 2.7% from an earlier 2.5%, mirroring the trend of cautious optimism among multilaterals.

Global growth outlook improves slightly

The IMF has raised its global growth forecast for 2025 to 3.0%, up by 0.2 percentage point from its April estimate.

The 2026 outlook also sees a mild upward revision to 3.1%. These revisions reflect improved financial conditions, front-loaded activity ahead of expected trade tariffs, a softer US dollar, and fiscal support in key economies.

Despite the upgrades, the report warns that global economic resilience remains fragile. Inflation, although declining, is projected to stay above target in the United States, while easing more sharply in other major economies.

Financial markets have shown signs of recovery since April, with equity valuations rebounding and corporate credit spreads narrowing. Volatility remains subdued despite lingering uncertainties around global trade and monetary policy shifts.

Central banks across advanced economies are taking varied paths. While the European Central Bank may consider one more rate cut before pausing, the Federal Reserve and the Bank of England are expected to ease rates modestly.

Japan stands apart, with a low probability of further tightening.

Meanwhile, sovereign bond yields in major economies have climbed due to increased debt issuance and reduced investor demand for long-duration bonds.

In contrast, local currency yields in emerging markets, including Pakistan, have eased, supported in part by a weaker US dollar and improved capital flows.

The US dollar has depreciated notably since April, contributing to the appreciation of several emerging market currencies. Though structural concerns around the dollar’s hedging role are emerging, there is no widespread evidence yet of a shift away from US assets.

Investor sentiment towards emerging markets has improved, with renewed capital inflows and growing expectations that central banks in developing countries may soon have room to ease monetary policy.

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