MediumIV Macro Policy & Sovereign Debt13 October 2026, Tuesday
IMF lifts Pakistan's inflation forecast well above the government target
The IMF's World Economic Outlook, released on 13 October, raised Pakistan's inflation forecast for fiscal 2026-27 to 9.9% from 8.4% in April and July. The growth forecast stayed at 3.5%, against a government target of 4%.
According to the Express Tribune on 13 October, the new forecast sits 1.7 points above the government's official inflation target of 8.2%. The current account will swing from a surplus of 0.5% of GDP in the previous year to a deficit of 1% of GDP; the paper puts that deficit at about $4.4 billion, roughly $450 million more than the earlier projection. Dawn says unemployment is expected to fall from 6.9% to 6.5%. The World Bank forecast 3.8% growth last month, and Finance Minister Muhammad Aurangzeb told Reuters growth would exceed 4%.
Dawn reports that the IMF's 13 October report said energy-importing economies with weak links to the technology value chain face the toughest outlook, and that risks are tilted to the downside, above all from escalation in the Middle East. According to the Express Tribune, the government is passing fuel-price increases in full to consumers, while the IMF considers its fuel-compensation plan broad and costly. Under a provisional timetable, the staff report will be published at the end of November 2026, after the executive board clears the loan tranches. Dawn reported on 13 October that petrol was cut by Rs2.93 a litre while diesel rose by Rs0.61.
Talay assessment
Bottom line
By holding growth steady while raising inflation 1.5 points, the IMF is saying Pakistan's shock comes from energy costs, not demand. The 9.9% forecast sits clearly above the 8.2% target, which means tightening pressure on the central bank and a squeeze on the government's fuel compensation. Board approval at the end of November depends on agreement over the fuel-support plan.
Likely effects
- Monetary policyNegativeWeeks
With the inflation forecast 1.7 points above target, the central bank's room to cut narrows; rates must stay high to keep real rates positive.
- External financingNegative1–6 months
The swing from a 0.5% surplus to a deficit of 1% of GDP, about $4.4 billion, deepens reliance on IMF tranches and other external funding.
- Households and social balanceNegativeWeeks
Passing fuel increases through in full and trimming fuel compensation shifts cost-of-living pressure onto lower-income groups.
Possibilities, ranked
- 1Agreement and November approval60%
The government narrows and targets fuel compensation, and the board approves the tranches at the end of November.
Watch: Pakistan's review appearing on the IMF board agenda and publication of the staff report
- 2Approval delayed25%
Disagreement over the fuel-support plan and energy debt persists, pushing board approval to year-end.
Watch: No board date announced by the end of November
- 3Inflation undershoots15%
Oil prices ease, food prices settle and realised inflation comes in well below 9.9%.
Watch: Consecutive declines in the Pakistan Bureau of Statistics' monthly CPI
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- FY27 inflation forecast▼ 8.4% → 9.9%
- Current-account forecast▼ 1% of GDP deficit