IMF predicts inflation in Pakistan to rise again next fiscal year

The International Monetary Fund (IMF) has warned that inflation in Pakistan could see an upward shift in the coming months, reversing the modest relief experienced previously. In its latest World Economic Outlook report, released on Tuesday, the IMF projected that inflation will rise to 6 percent in the 2025–26 fiscal year, compared to 4.5% in FY24-25. 

What makes this projection notable is that it runs counter to the broader global trend. Internationally, inflation is anticipated to cool down — the IMF estimated that global inflation is going to drop to 4.2% in 2025 and further decline to 3.7% in 2026. Pakistan, however, appears to be moving in the opposite direction. 

Despite this inflationary pressure, the IMF has kept Pakistan’s economic growth forecast unchanged at 3.6% for FY2025-26. Globally, growth is expected to slow from 3.3% in 2024 to 3.1% in 2026, meaning Pakistan is projected to remain broadly aligned with the world economy in terms of growth, even if it lags on inflation control. 

Read more: Inflation to lower further in Pakistan, says State Bank governor

There is, however, one bit of positive news for the local job market. The IMF expects unemployment in Pakistan to come down slightly, from 8% last year to 7.5% in the current fiscal year. While that is not a dramatic improvement, it does indicate some stabilization in the labor market. 

The IMF also issued some caveats about its projections, noting that they do not show the economic fallout of recent floods. The full impact of the destruction is still being measured, but it has already caused serious setbacks. 

Earlier this month, Pakistan has informed the IMF that economic losses from the floods have reached Rs. 371 billion. In response, the government has revisited its GDP growth target downward by 0.3 percentage points, decreasing it from 4.2% to 3.99%. 

For ordinary Pakistanis, the combination of higher inflation and slower-than-expected growth could mean tighter household budgets and increased cost-of-living pressures in the coming year. With recovery spending, reconstruction requirements, and external financing challenges still in play, policymakers will likely be under pressure to strike a delicate balance between fiscal discipline and public relief.