Pakistan’s economy grew 3.7% last year, says World Bank

The World Bank’s Pakistan Development Update credits rating upgrades and a return to bond markets for the recovery, but flags a sharp mid-year inflation spike driven by energy prices.

By TT Staff Reporter

22 October 20262 min read

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ISLAMABAD (The Thursday Times) — Pakistan’s economy grew 3.7% in the fiscal year that ended in June, up from 3.2% the year before, the World Bank said in its October 2026 Pakistan Development Update, even as inflation surged in the second half of the year on the back of rising energy prices.

3.7%

GDP growth in FY2025–26, up from 3.2% a year earlier

7.1%

Average headline inflation for the year

$19.7bn

Foreign exchange reserves

2.6%

Fiscal deficit, as a share of GDP

The report, titled Attaining Escape Velocity, credited the recovery partly to improved market access: both S&P Global and Moody’s raised Pakistan’s credit rating this year, to ‘B’ and ‘B3’ respectively, and the country returned to international bond markets with a $750 million Eurobond and a separate $3 billion issuance.

Services and agriculture carry growth

Services output grew 4.1%, the World Bank said, while agriculture grew 2.9%, helped by the livestock sub-sector. The State Bank of Pakistan raised its policy rate to 11.5% during the year as it tried to contain inflation.

Pakistan’s GDP growth, %

FY2024–253.2

FY2025–263.7

FY2026–27, forecast3.8

Source: World Bank, Pakistan Development Update, October 2026.

A sharp inflation spike

Inflation did not move evenly through the year. The World Bank said prices rose relatively gently for most of the year before accelerating sharply: average inflation climbed to 10.2% between March and June 2026, and peaked at 11.7% in May, as the conflict in the Middle East pushed up energy prices.

Between February and June, petrol prices rose about 36%, high-speed diesel about 31% and liquefied petroleum gas about 46%, the report said, while transport fares rose roughly 30% over the same period. The State Bank’s core inflation measure, which strips out food and energy, averaged 7.4% in urban areas and 8.5% in rural areas over the year, and touched 9% in urban areas in May alone.

Headline inflation, 2025–26, %

FY26 average7.1

March–June 2026 average10.2

May 2026 peak11.7

FY24–25 average inflation was 4.5%. Source: World Bank, Pakistan Development Update, October 2026.

Food prices hit rural households harder

Food inflation averaged 4.3% in urban areas and 5.4% in rural areas over the year, the World Bank said, driven mainly by wheat and perishable items. By August, food had become the single biggest driver of inflation in both urban and rural areas.

Next year

The World Bank projects growth will edge up to 3.8% in the current fiscal year, 2026–27, while average inflation is expected to rise further, to 8.2%.∎