The World Bank has warned that inflation is expected to rise in Pakistan due to the impact of recent floods that damaged agricultural production and disrupted supply chains across the country.

According to its latest Pakistan Development Update, inflation is projected to reach 7.2 per cent during the current fiscal year before easing slightly to 6.8 per cent in the next.

The bank attributed the price surge to reduced crop output and supply disruptions following widespread flooding that hit key farming regions.

The report noted that Pakistan’s economy grew by 3 per cent in fiscal year 2025, up from 2.6 per cent the previous year, driven largely by improvements in the industrial and services sectors, while agriculture remained under pressure.

Growth is expected to hover around 3 per cent over the next two years, supported by fiscal discipline and policy continuity.

While acknowledging Pakistan’s moderate recovery, the World Bank stressed that tariff reforms alone will not be enough to strengthen exports.

The report urged the government to prioritise export expansion in its development agenda to sustain growth and reduce external vulnerabilities.

The report also highlighted Pakistan’s prevailing employment challenge, noting that 1.6 million young people enter the labour market each year.

The bank warned that faster economic growth is essential to generate jobs and reduce poverty, currently estimated at 21.5 per cent.

Projecting a gradual improvement, the report forecast that GDP growth could reach 3.4 per cent by 2027, provided the government continues to implement reforms.

It called on authorities to broaden the tax base, reform loss-making state-owned enterprises, and continue privatisation efforts to strengthen fiscal stability.

The World Bank said sustained reforms, increased investment, and a business-friendly environment are critical to achieving long-term growth and improving living standards.

However, it cautioned that global uncertainty and climate risks could continue to limit the pace of economic recovery.