IMF lowers Pakistan’s GDP growth to 2.6% after US tariffs

The International Monetary Fund (IMF) has lowered its prediction for Pakistan’s economic growth this year, cutting it from 3% to 2.6%, according to its latest World Economic Outlook report.

This downgrade came after the U.S., under President Donald Trump, increased tariffs up to 29%, which affected the economies of many developing countries, including Pakistan.

Despite this, the IMF expects Pakistan’s economy to grow better next year — reaching 3.6% in the 2025–26 financial year.

Inflation in Pakistan, which was very high at 23.4% in 2024, is expected to drop to 5.1% this year, though it might rise again to 7.7% next year.

The IMF also updated its view on Pakistan’s current account deficit — now expecting it to be much smaller than before. Instead of 1% of GDP, it’s now predicted at just 0.1%, which equals about $400 million, compared to an earlier estimate of $3.7 billion. By 2026, the deficit might increase slightly to 0.4% of GDP.

The unemployment rate is expected to stay at 8% in 2025, slightly better than 8.3% in 2024, and may fall to 7.5% in 2026.

The IMF noted that recent U.S. tariff hikes have caused slower growth in many developing countries. Pakistan — along with nations in the Middle East and Central Asia — may struggle due to trade disruptions and rising global borrowing costs.

The report came while Finance Minister Muhammad Aurangzeb was in Washington attending the Spring 2025 meetings of the World Bank and IMF. During these meetings, he reassured IMF’s Kristalina Georgieva that Pakistan remains committed to economic reforms.

Speaking at an IMF panel titled “Revenue Mobilisation in the Medium Term”, Aurangzeb said Pakistan is working to expand its tax system so that sectors like agriculture, real estate, and retail pay their fair share.

He also met investors, highlighting that Pakistan’s economy is stabilizing and that a recent credit upgrade by Fitch is a positive sign for the country’s return to global financial markets.

The IMF’s new outlook doesn’t only apply to Pakistan — the global economy is also slowing. The IMF cut its global growth forecast for 2025 from 3.3% to 2.8%, and expects 3% growth in 2026 instead of the previously expected 3.3%.

Global inflation is also expected to ease more slowly than hoped. It might reach 4.3% in 2025 and 3.6% in 2026, with noticeable increases in the U.S. and other advanced economies.

Calling it a “reference forecast”, the IMF said the current global economy is very complex and unpredictable. Pierre-Olivier Gourinchas, the IMF’s chief economist, said the world is going through major economic changes, with slower growth expected across the U.S., Europe, China, and other regions.

He also warned that if trade tensions grow worse, it could cause more market instability, tougher borrowing conditions, and slower growth around the world.

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