According to the World Bank’s Pakistan Development Update released on Thursday, progress towards economic stability had created an important opportunity for Islamabad to achieve faster, sustainable growth and generate more employment.
The report said consistent economic policies over recent years had helped stabilise the economy and sustain growth, although the effects of the conflict in the Middle East had also affected economic performance.
Pakistan’s real gross domestic product (GDP) growth rose to 3.7 per cent in fiscal year 2026, up from 3.2 per cent in fiscal year 2025, the report said. Measures to increase revenues and control expenditure helped the primary fiscal surplus reach a record 2.9 per cent of GDP in FY2026, while higher remittances supported a recovery in foreign exchange reserves.
Reflecting these improvements, credit rating agencies S&P and Moody’s upgraded Pakistan’s ratings. The issuance of $3 billion in Eurobonds also enabled the country to return to international debt markets.
World Bank Country Director for Pakistan Bolormaa Amgaabazar said the country had made genuine progress in restoring economic stability, which international markets had also recognised. However, she noted that growth in real per capita income remained limited to around 1.6 per cent.
She added that swift implementation of reforms was essential to accelerate economic growth. According to the report, adopting broad-based and effective reforms similar to those pursued by successful economies could raise Pakistan’s annual sustainable growth rate to between 6.2 and 6.9 per cent.
At that pace, Pakistan could reach Vietnam’s current per capita income level by 2050.
Sebastien Essl, the report’s lead author, said that despite improvements in economic stability, fiscal resources and foreign exchange availability remained constrained. Structural reforms that encourage private investment were therefore necessary to improve living standards.
The report noted that private-sector-led growth would require comprehensive planning, effective coordination among institutions and sustained commitment to implementing reforms.
It identified a range of reforms that could enable Pakistan to reach by 2050 the per capita income levels of countries currently classified as upper-middle-income economies.
Some measures are already underway, including timely adjustments to energy tariffs, continued trade liberalisation under the national tariff policy and the recent privatisation of Pakistan International Airlines (PIA).
Timely energy tariff adjustments helped reduce energy subsidies from 1.1 per cent of GDP in FY2025 to 0.8 per cent in FY2026, the report said.
However, sustaining these gains and accelerating growth will require further improvements in the business environment, tax system reforms, a reduced role for the state in the economy and better access to finance, it added.