IMF forecasts 1.3% contraction in Pakistan, Middle East and North Africa in 2026

The International Monetary Fund forecasts that economic output across Pakistan, the Middle East and North Africa will contract by 1.3% in 2026, followed by growth of 6.6% in 2027. The IMF linked the 2026 outlook to the war involving Iran and its effects on energy production, shipping, tourism, trade and confidence.

The impact is uneven, with oil-exporting economies more exposed to interruptions in energy output and shipping, while oil-importing economies have shown greater resilience. The IMF said domestic demand in oil importers has received support from remittances and tourism, favourable financial conditions and policy measures to protect consumers from higher commodity prices.

The IMF's baseline projection assumes the conflict subsides in early 2027, with trade returning to normal gradually during that year. It warned that the outlook remains highly uncertain and that further interruptions to energy production or trade routes could lift energy prices.

The fund also flagged the possibility of tighter external financing conditions if expectations for productivity gains from artificial intelligence are revised and interest rates increase amid inflation and fiscal concerns. It urged policymakers to protect price stability and fiscal sustainability, preserve central bank independence and pursue structural reforms aimed at productivity and job creation.