World Bank Warns of Slower Growth, Rising Inflation in Pakistan After Floods

ISLAMABAD – The World Bank has cautioned that Pakistan’s economy is likely to experience slower growth and increased inflation due to the recent floods that have devastated key agricultural regions and disrupted supply chains.

In its latest report on Pakistan’s economic outlook, the World Bank projected GDP growth to remain limited to 2.6% for the current fiscal year, significantly lower than the government’s target of 4.2%. The report added that growth could rise slightly to 3.6% in the next fiscal year, contingent on the pace and effectiveness of recovery efforts.

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According to the report, agricultural production in Punjab has suffered heavily, with overall yields falling by 10% after widespread flooding. Major crops such as rice, sugarcane, cotton, wheat, and maize have been hit particularly hard, leading to food supply disruptions and heightened inflationary pressure. As a result, inflation is projected to exceed 7% in the ongoing fiscal year, contributing to an increasingly difficult environment for households already grappling with high living costs.

The World Bank further warned that these setbacks could hinder the fragile economic recovery Pakistan had started to achieve over the past year. The fiscal deficit is expected to widen to 5.5%, driven by emergency spending on flood relief and recovery operations. The combination of higher food prices and damaged transport networks is expected to further squeeze household purchasing power, especially among lower-income populations.

In terms of poverty, the World Bank report projected only a marginal improvement. The poverty rate is expected to stand at 44% this fiscal year and decline slightly to 43% next year. Losses in the agricultural sector and a spike in food prices may undermine the modest gains made through remittances and social safety net programs.

Despite the grim outlook, the World Bank maintained that Pakistan could still achieve economic stability if it implements strong fiscal reforms, boosts revenue generation, and cuts unnecessary public spending. A revival of the agriculture sector, which remains a key pillar of the rural economy, is seen as crucial to future growth and poverty reduction.

The report also pointed to the potential for export growth under Pakistan’s five-year reform agenda, which includes tariff reductions and measures to enhance competitiveness. However, it warned that short-term export performance may suffer as a result of flood-related damage to crops and infrastructure.