The World Bank has said that Pakistan’s current economic growth rate of 3% is not enough to significantly reduce poverty or unemployment, despite signs of gradual recovery.

The statement came in the Pakistan Development Update Report 2025, released this week.

According to the report, Pakistan’s economy is expected to grow from 2.6% last fiscal year to 3% in the current one, with a projected increase to 3.4% in the next fiscal year. However, the World Bank cautioned that this pace of growth remains too weak to meet the needs of the country’s growing population and labour market.

Job creation remains far behind youth influx

The World Bank noted that 1.6 million young people enter Pakistan’s labour market each year, yet employment opportunities remain limited. This gap between job seekers and available opportunities is a major factor in persistent poverty and inequality.

The report estimated that poverty may decline only slightly -- from 22.2% to 21.5% this year -- underscoring the need for faster, more inclusive growth.

Inflation outlook, fiscal projections

The World Bank projected inflation to average 7.2% in the current fiscal year, easing to 6.8% next year. However, it warned that flood-related disruptions and climate-induced disasters could again pressure prices and supply chains.

The Bank stressed the need for sustainable, investment-driven growth to manage inflation, create jobs, and improve living standards.

Key reform areas identified

To strengthen Pakistan’s economy, the World Bank emphasized reforms in five key sectors:

Tax revenue and fiscal policy – Boosting revenue collection and improving the tax-to-GDP ratio.
Exports and trade – Reducing tariffs and trade barriers that hinder competitiveness.
Investment climate – Creating a more conducive environment for business and private sector expansion.
Exchange rate and monetary management – Ensuring stability to attract foreign investment.
Public sector reforms – Improving governance, efficiency, and service delivery.

The report pointed out that Pakistan’s export base and tax revenues remain far below regional averages, limiting the country’s ability to finance development and social protection programs.

Climate change poses growing threat

The World Bank also identified natural disasters linked to climate change, such as the recent floods, as a significant threat to Pakistan’s economic stability. It urged the government to prioritize resilience and climate adaptation in national planning to safeguard long-term growth.

Despite these challenges, the World Bank acknowledged that Pakistan has shown improvement in fiscal discipline and economic management amid difficult global conditions. Sustained reform, it said, could help the country move toward more inclusive and sustainable growth.