ISLAMABAD: The International Monetary Fund has cautioned that the ongoing Middle East conflict is likely to fuel global inflation and dampen economic growth, while also widening Pakistan’s external imbalances.
In its latest World Economic Outlook (WEO), released during the World Bank–IMF Spring Meetings 2026, the IMF projected Pakistan’s current account to shift from a surplus of 0.5% of GDP to a deficit of 0.4% in the current fiscal year, further expanding to 0.9% in the coming years.
The Fund estimated Pakistan’s economic growth at 3.6% for the current year, easing slightly to 3.5% by FY2027. Inflation, measured by the Consumer Price Index, is projected to rise to 7.2% this year and further to 8.4% by 2027, compared to 4.5% in FY2025.
On a positive note, unemployment is expected to decline gradually—from 7.1% in 2025 to 6.9% in FY2026 and 6.5% by FY2027.
The IMF noted that the conflict in the Middle East has disrupted the fragile recovery of the global economy, which had previously been supported by improved financial conditions, policy support, and technology-driven investments. The war, it said, is now exerting pressure through higher commodity prices, rising inflation expectations, and tighter financial conditions.
Given the uncertainty, the IMF introduced a “reference forecast” instead of its traditional baseline, assuming the conflict remains limited in duration and subsides by mid-2026. However, it warned that prolonged or escalating tensions could further weaken global economic prospects.
Under this scenario, global growth is projected at 3.1% in 2026 and 3.2% in 2027—below the recent average of 3.4% and significantly lower than the historical average of 3.7% recorded between 2000 and 2019. The 2026 forecast has been revised downward by 0.2 percentage points.
Global inflation is expected to rise to 4.4% in 2026 before easing to 3.7% in 2027, reflecting upward revisions due to geopolitical disruptions. The IMF noted that, in the absence of the conflict, global growth for 2026 could have been higher at 3.4%.
The report concludes that escalating geopolitical risks, particularly in energy-sensitive regions, pose a significant threat to global stability, with far-reaching implications for inflation, trade, and economic recovery worldwide.
Story by Khaleeq Kiani
