World Bank flags Pakistan’s fragile recovery

October 28, 2025 (MLN): The World Bank has warned that Pakistan’s current economic growth rate of 3% is too low to meaningfully reduce poverty or unemployment, even as the country shows early signs of gradual recovery.

In its latest Pakistan Development Update Report 2025, released this week, the international lender projected that Pakistan’s GDP growth would rise from 2.6% in the last fiscal year to 3% in the current one, and further to 3.4% in the next fiscal year.

However, it cautioned that this pace of expansion remains insufficient to meet the needs of a rapidly growing population and labour force.

The report stressed a growing challenge in the job market, pointing out that about 1.6m young people enter Pakistan’s workforce every year, yet job creation continues to lag behind.

This persistent gap between employment demand and opportunity, the World Bank said, is a major driver of poverty and inequality. It estimated that the national poverty rate is likely to decline only marginally from 22.2% to 21.5%, highlighting the need for faster and more inclusive growth to uplift living standards.

On the inflation front, the World Bank projected that consumer prices will average around 7.2% during the current fiscal year, easing slightly to 6.8% in the next.

While inflationary pressures have softened compared to previous years, the report warned that flood-related disruptions and climate shocks could once again threaten price stability and supply chains.

The Bank stressed that sustained, investment-led growth is essential to stabilize inflation, create jobs, and improve real incomes across the country.

The report also emphasized the importance of comprehensive structural reforms to unlock Pakistan’s growth potential.

It called for urgent measures to boost tax revenues, enhance fiscal discipline, and improve the country’s low tax-to-GDP ratio.

It further urged the removal of trade barriers and high tariffs that continue to restrict export competitiveness. Improving the investment climate, maintaining a stable exchange rate regime, and strengthening public sector governance were also cited as critical steps toward long-term economic resilience.

According to the World Bank, Pakistan’s export base and tax revenues remain far below regional averages, limiting the government’s ability to fund essential development and social protection programs. Without expanding its revenue base and diversifying exports, the country will struggle to sustain growth or provide adequate public services.

The report additionally warned that climate change poses an escalating risk to Pakistan’s economic stability. It noted that frequent natural disasters, including devastating floods, threaten to reverse development gains and disrupt agricultural and industrial output.

The World Bank urged policymakers to prioritize climate resilience and adaptation strategies within national development plans to safeguard long-term economic progress.

Despite these challenges, the report acknowledged that Pakistan has made progress in fiscal management and economic discipline under difficult circumstances.

The World Bank said that if the government continues to implement structural reforms and strengthens private sector participation, Pakistan could gradually transition toward more sustainable, inclusive, and resilient growth in the coming years.

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