IMF raises Pakistan’s inflation forecast to 9.9%

The International Monetary Fund (IMF) has raised Pakistan’s inflation forecast to 9.9% for the current fiscal year while maintaining its economic growth projection at 3.5%. The revised estimates indicate that the lender remains cautious about the country’s economic outlook despite the government’s expectations of stronger growth and lower inflation.

According to the IMF’s latest World Economic Outlook (WEO) report, released on Tuesday, inflation in Pakistan is expected to rise significantly from the 8.4% forecast issued in April and retained in July. The new projection is also above the government’s official inflation target of 8.2% for the fiscal year 2026-27.

The IMF has not provided a specific explanation for the upward revision in Pakistan’s inflation outlook. However, it has highlighted rising energy prices and disruptions to global supplies amid the ongoing conflict in the Middle East as major factors contributing to renewed inflationary pressures across several regions.

The higher inflation forecast could complicate monetary policy decisions and increase pressure on the State Bank of Pakistan to maintain tight financial conditions. Higher interest rates may be considered necessary to contain price increases, although the IMF report does not explicitly recommend a specific rate adjustment for Pakistan.

Pakistan’s government has been passing higher fuel costs on to domestic consumers while continuing to collect substantial taxes on petroleum products. It has also introduced monthly financial assistance of Rs2,000 for motorcyclists and Rs3,000 for small car owners to provide relief from rising fuel expenses. However, the IMF has criticised the scheme, describing it as broad-based and costly.

The lender noted that global headline inflation increased in August as energy prices rebounded following a brief ceasefire in the Middle East. Continued instability in energy markets could further complicate efforts to control inflation in countries that depend heavily on imported fuel.

The IMF has kept Pakistan’s economic growth forecast at 3.5% for the current fiscal year, unchanged from its previous estimate. The projection remains below the government’s target of 4%, highlighting the difference between official expectations and the lender’s assessment of the economy.

Finance Minister Muhammad Aurangzeb has expressed confidence that economic growth could exceed 4%. In an interview with Reuters, he said he remained confident that Pakistan could achieve growth above that level.

Pakistan has pursued economic stabilisation through successive IMF programmes, focusing on fiscal discipline and controlling financial imbalances. However, the adjustment measures have also raised concerns about poverty, employment and the pace of economic recovery.

Planning Minister Ahsan Iqbal has recently proposed an eight-point Growth-Compatible Fiscal Stabilisation Framework to Prime Minister Shehbaz Sharif. The proposed approach aims to move beyond stabilisation measures and place greater emphasis on sustainable economic growth and development.

In his recommendations, Iqbal warned that Pakistan’s fiscal improvement had increasingly relied on cuts to development spending and additional borrowing rather than expanding the tax base and boosting exports. He stressed the need for a strategy that supports investment, employment and stronger economic activity.

The planning minister also cautioned that voters would assess the government’s economic performance in 2029 based on their everyday experiences, including employment opportunities, household incomes, investment, exports, inflation and energy costs.

Meanwhile, the IMF has revised its projection for Pakistan’s current account deficit to 1% of gross domestic product (GDP), equivalent to approximately $4.4 billion. This is around $450 million higher than its previous estimate, suggesting continued pressure on the country’s external accounts.

The report also outlined a challenging outlook for the Middle East and Central Asia, where economic growth is projected to slow to 0.3% in 2026 before recovering to 6.3% in 2027. The IMF attributed the sharp revision partly to expectations of a longer disruption in the Strait of Hormuz, a key route for global energy supplies, followed by a stronger recovery once the waterway reopens.

At the global level, the IMF expects the economy to expand by 3.1% in 2026 and 3.4% in 2027. These estimates remain broadly unchanged from its April projections despite persistent geopolitical tensions, trade disputes and disruptions in energy markets.

Global headline inflation is projected to reach 4.7% in 2026 before declining to 4.1% in 2027. The IMF expects the impact on core inflation to remain limited, although rising commodity prices continue to pose risks.

The lender said global economic activity performed better than expected in the first half of 2026 despite the conflict in the Middle East and ongoing trade tensions. Strong investment in artificial intelligence and technology-related demand helped support economic activity in several countries.

However, the IMF warned that the global economy’s resilience could weaken if supply constraints persist and governments fail to rebuild their financial buffers. It also cautioned that declining energy inventories and further geopolitical shocks could trigger fresh price increases and supply disruptions.

For Pakistan, the revised outlook presents a difficult economic challenge. Higher-than-expected inflation, growth below the government’s target and a wider current account deficit could complicate efforts to sustain economic stability while improving living standards and creating jobs.