Economics & Development

Growth is projected to remain weak, averaging about 1.5 percent over 2026–28, amid heightened geopolitical uncertainty, higher and more volatile oil prices, and declining aid. These headwinds are expected to be partly offset by the Lesotho Highlands Water Project, higher water royalties, and strong Southern African Customs Union (SACU) revenues. Poverty is projected to remain high at about 59 percent of the population, based on the international poverty line.

Sustaining macro-financial stability will depend on disciplined fiscal and monetary policy, expanding the revenue base, enhancing public financial management, and accelerating sector reforms, namely in energy and cocoa. Along with macroeconomic stability, improving the investment environment will enable broader-based growth and job creation, accelerating poverty reduction.

Economic growth is estimated at 5.8 percent in 2025,mainly driven by tourism, with inflation at 0.3 percent and a poverty rate of 7.2 percent using the upper-middle-income poverty line of US$8.30 per day (2021PPP). Growth is projected at 1.1percent in 2026, as visitor arrivals are moderate. The government aims to maintain fiscal consolidation through improved revenue efficiency while expanding social benefits. External shocks and domestic policy uncertainties, however, pose downside risks.

Growth momentum is robust, driven by infrastructure investment and agricultural recovery. Labor markets remain weak, with high inactivity and unemployment. Fiscal consolidation progresses but spending pressures could strain public finances. The current account deficit is widening but contained, supported by tourism and FDI. Near-term prospects are favorable, with growth projected at 4.2 percent in 2026, though downside risks remain, including Middle East conflict.

Growth is resilient but has increasingly relied on short-term stimulus rather than productivity gains. With global investors reassessing Indonesia’s market transparency and the predictability of the policy mix, sustaining growth needs productivity-enhancing reforms that deliver better jobs at scale: deregulation, financial sector deepening, and investment and trade openness. These, alongside strengthening fiscal and monetary anchors, are key to achieving 2045 Vision.

Growth remained resilient in 2025, supported by policy measures and exports, even as domestic demand stayed subdued. Growth is projected to moderate to 4.2 percent in 2026. Headwinds include cautious consumer spending, ongoing property sector adjustment, and the conflict in the Middle East. Poverty reduction is expected to continue at a slower pace in line with moderating growth.

Economic activity in Pakistan gained momentum in FY26 as domestic demand strengthened. However, the conflict in the Middle East will significantly affect the growth outlook as disruptions to energy markets, and trade routes raise Pakistan's import bill, weigh on exports and remittances, and dampen domestic activity. Fiscal discipline, oil price pass through, exchange rate flexibility, and structural reforms are critical to managing risks and sustaining growth.

GDP growth is estimated to slow to 1.7 percent in 2025, with a modest recovery to 2.7 percent in 2026, influenced by the ongoing Middle East conflict. New energy projects could boost medium-term growth. With lower Southern African Customs Union (SACU) revenues, maintaining fiscal discipline is crucial to reduce debt. Due to modest growth and high unemployment, poverty is estimated at 28.3 percent in 2025 (US$3/day international poverty line, 2021 PPP).

Real GDP growth recovered strongly from the 2024 El Niño induced drought to an estimated 7.5 percent in 2025. Improved macroeconomic stability, productive harvests, rising remittances, and mining growth (anchored by high global mineral prices) support the economic recovery and a robust near-term growth outlook. The poverty rate declined slightly in 2025 on the back of the economic growth driven by the agriculture sector.

The economy contracted by an estimated 5.4 percent in 2025, driven by a decline in the hydrocarbon sector expected to persist over the medium term. Weak growth in labor-intensive sectors, agriculture and services, is expected to increase poverty by 1 percentage point. Fiscal and external balances deteriorated as exports declined. A sharper-than-expected decrease in oil output represents the main downside risk to the outlook.

In 2025, growth accelerated to 7.4 percent, spurred by bauxite production. Revenues reached 17.9 percent of GDP, inflation fell to 3.2 percent, and the poverty rate decreased to 22.3 percent. GDP growth is projected at 8.8 percent in 2026, averaging 11.1 percent over 2027–28 as Simandou iron production ramps up. The fiscal deficit will narrow to 3.0 percent by 2028, amid risks from the conflict in the Middle East and weather shocks.

Eighteen months after the revival of economic reforms, macroeconomic conditions are improving. In the first half of FY26, exports and revenues were robust, inflation continued easing, reserves increased, and poverty began to decline. Continued foreign exchange (FX) market distortions, and the Middle East conflict, are risks to these gains. Whether reforms deliver tangible gains for people will depend on sustaining momentum over the medium term.

Growth slowed in 2025 but remained broadly robust. Stronger export revenues and external financing helped rebuild foreign reserves, stabilized the Congolese franc, and supported a decline in inflation. However, the intensification of conflict in the East increased security spending and tightened fiscal space. Although growth prospects remain positive, growth has not yet translated into meaningful poverty reduction through the pro-poor use of natural resource revenues.