Economies of Mena, Pakistan show resilience, set to grow 3.7% in 2026

The International Monetary Fund (IMF) said economic activity in the Mena region and Pakistan has been stronger than expected, projecting a growth of 3.2 per cent in 2025, up from 2.1 per cent in 2024, and higher than its April forecast.

“Oil exporters have benefited from higher oil output following the faster unwinding of Opec+ cuts. Oil importers and Pakistan have gained from low energy prices, strong remittances, and a vibrant tourism sector, all supporting domestic demand.

Looking ahead, growth is expected to rise to 3.7 per cent in 2026, while inflation should remain moderate, helped by lower food and energy prices and tight monetary policies,” Jihad Azour, Director of the Middle East and Central Asia Department at IMF, told a press briefing about the latest economic outlook for the Middle East, North Africa, Pakistan and the Caucasus and Central Asia (CCA) on the sidelines of the 2025 Annual Meetings.

“In the CCA, growth is also expected to be driven by strong consumption, credit expansion, and steady hydrocarbon exports.”

“We project average growth of 5.6 per cent this year before easing gradually to about 4 per cent over the medium term as hydrocarbon production stabilises and fiscal consolidations take hold,” Azour said.

Despite the year marked by trade tensions and regional conflict he noted that economies of the Middle East, North Africa, Pakistan and the Caucuses in Central Asia have shown resilience.

Growth has held better than expected and the impact of higher US tariffs and geopolitical tensions has been short-lived.

Exchange rates, he added, have adjusted smoothly, sovereign spreads have narrowed, and several countries have successfully returned to international bond market.

Inflation, however, remains mixed, easing in most Mena economies and Pakistan, but accelerating and still elevated in many CCA countries due to robust demand and important price pressures.

“Overall, the outlook is positive but not without risks. In Mena and Pakistan, growth should continue to strengthen, supported by reforms and resilient domestic demand. In the CCA, growth will moderate to a more sustainable pace while inflation gradually declines.’’

However, he continued, downside risks remain. Significant recent shocks and still elevated global uncertainty could undermine demand and induce global economic slowdown or tightening global financial conditions.

Persistent inflation and concerns about fiscal sustainability in advanced economy could raise borrowing costs, especially for countries in our regions with large financing needs. The region remains exposed to geopolitical tensions and climate-related shocks, which could disrupt activity.

On the upside, faster progress toward peace and reforms could yield stronger and more inclusive growth.

Turning to policy priorities, he explained that the current momentum gives policymakers an opportunity to rebuild fiscal and external buffers, especially where reserves and fiscal space are limited.

To sustain growth and strengthen resilience, countries should first enhance fiscal frameworks to ensure long-term sustainability.

Second, reinforce monetary policy credibility to anchor inflation expectations. And three accelerate structural reforms to diversify economies, empower the private sector, and attract investment that creates jobs.

“Let me also reaffirm the IMF’s strong commitment to both regions. We continue to support our members through policy advice, financing, and capacity development. Since early 2020, the IMF has approved nearly $56 billion in financing for these countries. We have also delivered more than 385 capacity-development projects across 31 countries totaling $36.8 million in fiscal year 2024 and 2025.”

“In conclusion, I would like to say that the region has once again demonstrated its ability to weather shocks. The task now is to turn short-term stability into long-term strength by building buffers, modernising policy frameworks, and accelerating reforms that support inclusive and sustainable growth.”

Meanwhile the World Bank has lifted its growth outlook for the region encompassing the Middle East, North Africa, Afghanistan and Pakistan for 2025, though it has trimmed its forecast for next year, citing global economic challenges and political instability, Reuters reported.

The Washington-based lender said it now expected regional GDP growth across Middle East, North Africa, Afghanistan, and Pakistan (MENAAP) economies to average 2.8 per cent this year, up from 2.6 per cent forecast in its April growth outlook, driven by Gulf states seeing a boost in economic activity following a faster-than-anticipated phasing out of oil production cuts and growth from the non-oil sector.

Agencies