Pakistan’s economy recorded a modest growth of 3 per cent during the fiscal year ending June 2025, up from 2.6 per cent the previous year, driven by recovery in industrial output and expansion in the services sector, according to the World Bank’s Pakistan Development Update: Staying the Course for Growth and Jobs, released on Tuesday.

The report projected that growth will remain around 3 per cent in the fiscal year ending June 2026, with the recent floods weighing on agricultural productivity.

However, the bank expects gradual improvement in the medium term, contingent on macroeconomic stability and sustained reform momentum.

It said fiscal tightening and prudent monetary policy helped contain inflation and support fiscal and current account surpluses.

Industry and services showed signs of recovery despite weak agricultural performance caused by adverse weather and pest attacks.

The floods, however, have inflicted heavy human and economic losses, particularly in urban and agricultural areas.

“Pakistan’s recent floods have imposed significant human costs and economic losses, dampening growth prospects,” said Bolormaa Amgaabazar, World Bank Country Director for Pakistan.

“Staying the course on reforms and accelerating job creation will be critical to maintaining growth and ensuring resilience for the most vulnerable.”

The report projected GDP growth at 3.4 per cent in FY27 but cautioned that tight fiscal policies and exposure to climate shocks may constrain progress.

The World Bank report stressed the need to broaden the tax base, strengthen administration, and divest inefficient state-owned enterprises to rebuild buffers and sustain recovery.

Stating that exports are key to long-term stability, it pointed out that Pakistan’s exports have declined from 16 per cent of GDP in the 1990s to 10 per cent in 2024.

The report called for deeper reforms in trade policy, energy, logistics, and digital infrastructure to unlock export-led growth.