Pakistan’s economy is poised for a significant downturn, facing slower growth and higher poverty, as economists warned at the 19th Annual Conference on Management of the Pakistan Economy today.
Projections reveal that the nation”s GDP growth for fiscal year 2026-27 could fall to a mere 1.8%, sharply below the pre-conflict estimate of 3.2%, primarily driven by surging global oil prices reaching $120 per barrel and a sustained reduction in investment. Inflation is also forecast to climb to 9.4%, intensifying pressure on households, according to a report by Lahore School of Economics.
Experts at the Lahore School of Economics-hosted conference highlighted Pakistan”s substantial reliance on imported energy, accounting for nearly 80% of its total needs. This dependency significantly amplifies the economic shock from rising global energy costs, exacerbating the current account deficit and escalating domestic expenses.
In his opening address, Rector Shahid Amjad Chaudhry identified three critical vulnerabilities: a weakened position in ongoing International Monetary Fund (IMF) negotiations due to accumulated debt, escalating import bills fuelled by high fuel costs, and the pressing need for long-term structural overhauls in taxation, regulatory frameworks, and capital injection.
A panel chaired by former State Bank governor Ishrat Husain observed that while Pakistan”s exchange rate has shown relative stability following sharp depreciations in 2018 and 2022, persistent external imbalances continue to exert underlying pressure.
Researchers from the Lahore School of Economics” Modeling Lab cautioned that the country”s sustainable growth rate has diminished to 3.7%, limiting its capacity for expansion without triggering balance of payments crises. Concurrently, the trend in Gross Domestic Product expansion has sharply contracted from 4% between 1992 and 2018 to 2.5% from 2018 to 2023, largely attributed to diminishing investment. Economists further estimated annual capital outflows of $6-9 billion, linking this trend to currency depreciation and declining domestic profitability, which have collectively weakened national savings and capital formation.
On the external front, Graduate School of Development Studies Director Rashid Amjad noted that despite remittances surging to approximately $40 billion in 2025, their impact on the domestic economy remains constrained as a significant portion is expended on imports. Structural weaknesses within Pakistan’s economy also came under intense scrutiny. Speakers pointed to the continued dominance of low-value textile exports, dwindling manufacturing capabilities, and a shrinking global market presence. The slowdown in industrial expansion was linked to elevated borrowing costs and reduced private sector investment.
Agriculture, traditionally a cornerstone of the economy, is also exhibiting signs of strain. Researchers reported declining growth in essential crops such as wheat and cotton, potentially due to falling support prices.
Regarding policy recommendations, Professor of Economics at Asia-Europe Institute, University of Malaya, Rajah Rasiah advocated for a proactive industrial strategy centred on export-led growth, suggesting Pakistan could leverage emerging strengths such as solar technology. The conference also brought attention to worrying social indicators. Data presented showed that caloric poverty, which had steadily decreased from 2000 to 2014, has reversed its trend since 2018 and continued to rise through 2025. Labour market challenges endure, marked by low female participation and high unemployment rates, even among university graduates, despite improvements in educational attainment.
Research on regulatory policy unveiled untapped opportunities. A study led by Theresa Thompson Chaudhry found that firms significantly underestimated the advantages of solar energy, despite potential electricity savings of 40-60% and payback periods of less than two years. Meanwhile, financial inclusion remains a protracted challenge. According to Jamshed Uppal, Research Professor at Busch School of Business, it could take over five decades for 90% of Pakistan’s populace to access formal banking services at the current rate.
Experts additionally underscored the importance of governance, with development economist Matthew McCartney observing that stable political environments are more conducive to growth-oriented reforms and poverty alleviation. In a broader assessment, conference participants cautioned that Pakistan was already contending with a structural slowdown prior to the latest fuel cost shock. Dwindling investment, exchange rate volatility since 2018, and escalating capital outflows have collectively eroded economic fundamentals.
While the recent stabilisation of the exchange rate was acknowledged as a positive development, attributed to government policy interventions, economists warned against renewed calls for further depreciation. They cautioned that such a move could reignite inflationary pressures and deepen economic instability.
The conference concluded with an urgent appeal for coordinated reforms to boost investment, enhance productivity, and strengthen export competitiveness.