Pakistan's economy to grow 3.4% in 2025, 4.2% by 2026, UN reports

January 13, 2025 (MLN): Pakistan's economy is projected to experience a modest expansion, with growth expected at 3.4% in 2025 and rising to 4.2% by 2026, according to a United Nations (UN) report.

The report titled "The World Economic Situation and Prospects" stated that Pakistan is expected to see a modest expansion in economic activity.

GDP is projected to grow by 3.4% in 2025 as the economy continues its recovery from the downturn during 2022–2023.

The economic outlook for South Asia in the near term is expected to stay strong, according to the UN report.

Regional GDP is expected to grow by 5.7% in 2025 and 6% in 2026, following a 5.9% increase in 2024.

This growth is driven by strong economic performance in India and a recovery in other economies such as Bhutan, Nepal, Pakistan, and Sri Lanka.

The report noted that risks to the outlook are tilted to the downside due to the potential escalation of geopolitical tensions, a slowdown in external demand, ongoing debt challenges, and social unrest.

It also highlighted that the region’s vulnerability to climate hazards makes extreme weather events a significant risk.

Global economic growth is projected to remain at 2.8% in 2025, the UN predicts.

The report mentioned that easing inflationary pressures across the region has allowed most central banks, including the State Bank of Pakistan (SBP), to pause monetary tightening or continue reducing policy rates in 2024.

It stated that interest payments have increased significantly since the pandemic, especially in countries like Pakistan that were already facing high interest burdens.

This trend is attributed to a combination of factors, including rising debt levels and low government revenues.

Regarding Pakistan’s engagements with the International Monetary Fund (IMF), it was highlighted that the IMF approved a new, larger programme for Pakistan in September 2024.

The report mentioned that the Extended Fund Facility is designed to support Pakistan's efforts in addressing structural challenges, restoring economic stability, and promoting sustainable growth, including reforms in state-owned enterprises and building climate resilience.

Key priorities include rebuilding policy credibility, advancing reforms to enhance competitiveness, and implementing other necessary changes, read the report.

Pakistan's inflation rate is expected to remain in double digits at 10.1% in 2025, with a projected decline to 8.3% in 2026, the report reads.

Average consumer price inflation for South Asia is expected to decrease from an estimated 9.9% in 2024 to 8.3% in 2025, and further to 7.2% in 2026.

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