Business Recorder
ISLAMABAD: Pakistan’s GDP growth is projected to slow to 2.5 to 3 percent in current fiscal year 2025-26, significantly below than initial projection of 4.5 percent, as Middle East tensions, rising energy prices and domestic supply constraints weigh heavily on the economy, leading economists said. Former finance minister Dr Hafeez Pasha told Business Recorder that growth projection is estimated to be around 2.5 percent, sharply lower than the 3.6 percent projection by the International Monetary Fund (IMF). He attributed the downgrade primarily to prolonged electricity load-shedding and an expected decline in fertilizer usage, both of which are likely to hit industrial output and agricultural yields. Also read: Early impact signs of Middle East war Dr. Pasha cautioned that persistent power shortages — linked partly to global oil market disruptions — are already constraining industrial activity. At the same time, reduced fertilizer application due to rising input costs is expected to weaken crop output, undermining agriculture’s contribution to overall growth. Echoing similar concerns, Dr Ashfaque Hassan Khan, former Advisor Finance Ministry said the trajectory of Pakistan’s GDP growth now hinges critically on the duration of the Middle East conflict. “The longer the conflict persists, the greater the damage to the economy,” he warned. Khan noted that prior to the escalation, Pakistan’s GDP growth was projected in the range of 3.25 to 3.5 percent, but the outlook has since deteriorated as energy prices surged. Higher oil and gas prices are feeding into inflation, which in turn is likely to trigger tighter monetary policy, raising borrowing costs. He now sees growth settling between 2.5 and 3 percent under prevailing conditions. Dr Khaqan Najeeb Economist & former advisor Ministry of Finance highlighted that while the economy showed some resilience in the first half of fiscal year 2026, emerging risks are clouding the full-year outlook. He noted GDP growth stood at 3.63 percent in the first quarter and 3.89 percent in the second quarter, placing first-half expansion at roughly 3.7–3.8 percent. However, he said the earlier full-year projection of 4.5 percent now appears optimistic. “The ongoing Middle East conflict and rising fuel prices are likely to moderate Pakistan’s growth by pushing up inflation, increasing pressure on the import bill, and creating uncertainty that dampens consumption and delays private investment,” Najeeb explained. He projected growth in the range of 3.8 to 4.1 percent, with downside risks pulling it further down to 3.3–3.6 percent if oil prices continue to rise and geopolitical tensions persist. Despite these headwinds, Najeeb pointed out that some support is coming from the industrial sector, where Large-Scale Manufacturing (LSM) recorded a 5.89 percent increase during July–February fiscal year 2026. However, he warned that a Rs173 billion cut in the Public Sector Development Programme (PSDP) is weighing on growth by constraining public investment. With power shortages persisting, input costs rising, and fiscal space tightening, the consensus among economists suggests that achieving even moderate growth will be challenging unless global conditions stabilize and domestic bottlenecks are addressed swiftly. Copyright Business Recorder, 2026
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