The World Bank has warned that Pakistan’s economy may face slower growth and rising inflation following the recent floods that have damaged key crops and disrupted supply chains.

In its latest report on Pakistan’s economic outlook, the World Bank projects GDP growth to remain limited to 2.6% in the current fiscal year, well below the government’s 4.2% target. Growth is expected to improve slightly to 3.6% in the next fiscal year if recovery efforts gain momentum.

Floods disrupt agriculture and recovery

The report highlights that the floods have severely impacted agricultural production in Punjab, with yields dropping by 10%. Major crops including rice, sugarcane, cotton, wheat, and maize have been hit hard, disrupting food supplies and increasing inflationary pressures.

As a result, Pakistan’s real GDP growth for FY2025-26 is expected to slow, while inflation may exceed 7% during the current year. The World Bank warned that these challenges could stall the fragile recovery achieved over the past year.

Fiscal deficit and inflation on the rise

The World Bank noted that Pakistan’s fiscal deficit is expected to widen to 5.5%, driven by increased spending on flood recovery and relief measures. Rising food prices and disrupted transport routes are likely to add pressure on household budgets, further limiting purchasing power.

The report said that economic growth will depend heavily on the revival of the agricultural sector, which remains the backbone of Pakistan’s rural economy and employment.

Poverty and social impact

While the World Bank projected a slight improvement in poverty levels, it said the progress remains fragile. The poverty rate is likely to stand at 44% during the current fiscal year and may fall only marginally to 43% next year.

Flood-related crop losses and higher food prices could offset some of the gains made through remittances and social protection programmes.

Despite the challenges, the World Bank report emphasized that economic stability is achievable through revenue growth, reduced public expenditure, and agricultural revival.

It noted that exports could improve under Pakistan’s five-year reform plan, which aims to lower tariffs and strengthen competitiveness. However, export performance in the short term may weaken due to flood-related disruptions.