IMF Forecasts Inflation to Rise to 9.9%, Growth at 3.5%

The latest estimates, published in the IMF’s World Economic Outlook report, indicate that the Fund expects higher inflation and slower economic progress than the Pakistani government’s targets suggest.

The IMF had projected inflation at 8.4% for fiscal year 2026–27 in April and maintained that forecast in its July report. It has now revised the estimate upward, although it did not specify Pakistan-specific reasons for the increase.

The Fund has also raised inflation projections for the Middle East and Central Asia, citing regional conflict and its potential impact on energy supplies and prices.

Pakistan’s new inflation forecast exceeds the government’s target of 8.2%. During recent review talks, the federal government and the State Bank of Pakistan expressed confidence that the annual target could still be achieved despite inflationary pressures. The higher projection could intensify attention on monetary policy and the possibility of further interest rate adjustments.

The government has been passing on higher international fuel costs to domestic consumers while imposing substantial taxes on petroleum products. It has also introduced monthly compensation of Rs2,000 for motorcyclists and Rs3,000 for owners of small cars. However, the IMF has reportedly raised objections to the scheme, describing it as broad-based and costly.

Meanwhile, the IMF has retained its forecast of 3.5% economic growth for Pakistan in the current fiscal year. Pakistani officials had sought to persuade the Fund during review discussions that the country could achieve annual growth of 4%.

Finance Minister Muhammad Aurangzeb has also expressed confidence that economic growth could exceed 4%, according to an interview with an international news agency.

Pakistan has relied on successive IMF programmes in recent years to support economic stabilisation. The World Bank has noted that policies aimed at stabilising the economy, including cuts to development spending, have also contributed to rising poverty.

The IMF has additionally revised its estimate of Pakistan’s current account deficit to 1% of gross domestic product, equivalent to approximately $4.4 billion.