ISLAMABAD: Pakistan’s economy grew by 3.0 percent in the fiscal year ending June 2025, an improvement from 2.6 percent the previous year, driven by a rebound in industrial activity and expansion in services, according to a World Bank report released today. However, recent floods have impacted the agricultural sector, and growth is expected to remain steady at 3 percent for the fiscal year ending June 2026.

Fiscal tightening and a prudent monetary policy anchored inflation and supported fiscal surpluses in a challenging global environment. Confidence in the industry and services sectors grew, though agriculture lagged due to adverse weather and pest issues. The recent floods have caused damage to both people and infrastructure, affecting growth potential.

Bolormaa Amgaabazar, World Bank Country Director for Pakistan, emphasized the need for continued reforms, job creation, and strengthened social safety nets to ensure sustainable development. The report suggests that immediate and long-term flood effects will weigh on growth, with a forecasted 3.0 percent GDP growth in FY26.

Mukhtar Ul Hasan, lead author of the report, highlighted the necessity of revenue and expenditure measures to manage flood impacts while maintaining fiscal consolidation. Key reforms include broadening the tax base, improving tax administration, and reducing state involvement in the economy.

A special chapter in the report underscores the importance of exports for long-term growth. Pakistan’s export share of GDP has fallen significantly, with high tariffs and logistical challenges cited as major constraints. Recent tariff reforms are a positive step, but broader measures, such as a market-determined exchange rate and improved trade finance, are needed to support export-led growth.

Co-author Anna Twum noted that while the government has prioritized export growth through policy changes like the National Tariff Policy, comprehensive measures are necessary to enhance trade facilitation and market access.