IMF Raises Pakistan’s Inflation Forecast to 9.9% for FY27, Holds Growth at 3.5%
The IMF inflation forecast Pakistan is working with has worsened: the Fund now expects 9.9 per cent inflation for fiscal year 2026-27, up from 8.4 per cent in April and July, while holding growth at 3.5 per cent.
The projections appear in the World Economic Outlook released on Tuesday during the lender’s annual meetings. They show the Fund far less convinced than Islamabad about the government’s 8.2 per cent inflation target, and far more worried about the Middle East conflict’s economic fallout.
IMF inflation forecast Pakistan: the key numbers
| Indicator | April/July estimate | October estimate |
|---|---|---|
| Inflation (FY27) | 8.4% | 9.9% |
| GDP growth (FY27) | 3.5% | 3.5% |
| Current account deficit | ~0.9% of GDP | 1.0% of GDP (~$4.4bn) |
| Government inflation target | 8.2% | 8.2% |
The Fund gave no specific reasons for lifting Pakistan’s inflation projection, but it also raised inflation forecasts across the Middle East and Central Asia. The regional conflict has disrupted energy supplies and pushed up prices, a direct hit for Pakistan, which sources about 90 per cent of its energy imports from the region.
The current account deficit forecast edged up to 1 per cent of GDP, roughly $4.4 billion, about $450 million higher than the previous estimate.
Why the Fund turned gloomier
The revision turns largely on the Strait of Hormuz. In July the Fund assumed transit would resume by mid-July; it now assumes reopening in March next year, with pre-war conditions not restored until October. Regional growth across the Middle East and Central Asia is now put at 0.3 per cent for 2026, recovering to 6.3 per cent in 2027.
Globally, the Fund kept world growth at 3.1 per cent for 2026 and 3.4 per cent for 2027, but expects global headline inflation to reach 4.7 per cent in 2026 on higher commodity prices, easing to 4.1 per cent in 2027.
What it means for Pakistan’s economy
The 9.9 per cent call sits uneasily against Pakistan’s own recent data. Inflation had eased to 10.3 per cent in September, and during staff-level talks the government and the State Bank insisted the annual target was within reach. The IMF’s number says otherwise, and strengthens the case for tight monetary policy, though the report stopped short of recommending a rate hike. It also criticised the government’s fuel compensation scheme, Rs2,000 a month for motorcyclists and Rs3,000 for small car owners, as broad-based and expensive, even as fuel costs are passed on to consumers with heavy taxes.
On growth, the gap persists. Pakistani officials argued the economy could hit the government’s 4 per cent target, and Finance Minister Muhammad Aurangzeb told Reuters he was confident of above-4 per cent growth. The IMF did not budge. Planning Minister Ahsan Iqbal’s recent eight-point fiscal framework memo to the prime minister made a similar case from inside the government, urging a broader revenue base and stronger exports over spending cuts, and backing the Rs2.2 trillion SME financing push.
Pakistan has pursued stabilisation through three IMF programmes, and the World Bank counts that prolonged stabilisation among the factors behind rising poverty, a concern underscored by the UN’s first global poverty increase since 2010. The Fund’s fuel-subsidy stance has already caused friction, with the finance minister saying he was unaware of an IMF demand to phase it out.
The staff-level report follows once the board approves the next loan tranches, tentatively in late November.
Frequently Asked Questions
What is the IMF’s new inflation forecast for Pakistan?
The IMF raised its FY2026-27 inflation forecast for Pakistan to 9.9 per cent in its October 2026 World Economic Outlook, up from 8.4 per cent in April and July. It exceeds the government’s 8.2 per cent target.
Did the IMF change Pakistan’s growth forecast?
No. The Fund kept Pakistan’s FY27 growth projection at 3.5 per cent, below the government’s 4 per cent target. Finance Minister Aurangzeb has said he remains confident growth will exceed 4 per cent.
Why did the IMF raise the inflation forecast?
The Fund cited no Pakistan-specific reasons but pointed to the Middle East conflict disrupting energy supplies and pushing up prices. It also pushed back its assumed reopening of the Strait of Hormuz to March next year.
When is the next IMF board review for Pakistan?
The staff-level report will be published after the executive board approves the next loan tranches, tentatively scheduled for late November 2026.
