Pakistan is facing mounting economic pressure from higher fuel prices, rising poverty and debt risks following the closure of the Strait of Hormuz, according to the World Bank.
The conflict that began in February 2026 has raised energy costs across the Middle East, North Africa, Afghanistan and Pakistan (MENAAP), with Pakistan among the countries experiencing sharp increases in gasoline and diesel prices.
In its latest regional economic update, *From Divide to Opportunity: AI, Jobs, and Growth*, the World Bank said gasoline prices had increased by 40 percent or more in Pakistan, Lebanon, Syria and the United Arab Emirates.
Diesel prices in Pakistan had also risen by more than 40 percent. While price controls and subsidies have cushioned consumers, they have added to fiscal pressures. Pakistan, along with Algeria, Djibouti, Iraq and Morocco, is facing significant debt or financing challenges.
The economic strain comes as Pakistan accounts for approximately 48 percent of people living below the $3-a-day poverty line across the MENAAP region. The country’s poverty rate increased by 6.4 percentage points at the $3-a-day threshold and 3.2 percentage points at the $4.20-a-day threshold between fiscal years 2018-19 and 2024-25. The World Bank attributed the increase to successive shocks, including the COVID-19 pandemic, the 2022 floods, high inflation, currency depreciation and prolonged economic adjustment.
Across MENAAP, 14.3 percent of the population lived on less than $3 a day in 2024, compared with 10.4 percent globally. The World Bank said adverse poverty trends were expected to continue through 2026, with poverty increasingly concentrated in conflict-affected and fragile economies.
The Bank projected Pakistan’s GDP growth at 3.8 percent in 2027, below the government’s 4 percent target. Inflation is expected to rise to 8.2 percent in 2027 from 7.1 percent in 2026. Per capita GDP growth is projected to edge up to 2.2 percent in 2027 from 2.1 percent in 2026, while the current account deficit is forecast to widen to 0.8 percent of GDP and the fiscal deficit to reach 3.5 percent.
Pakistan also faces risks from weaker economic activity in Gulf Cooperation Council countries. A prolonged slowdown in tourism, construction and related services could reduce demand for foreign workers and weaken remittance flows to labor-sending economies, particularly Pakistan and parts of the Levant. The country is also exposed to climate risks, with changing monsoon patterns, heat stress, irregular rainfall, drought and localized flooding threatening agricultural output.
Despite these pressures, the World Bank identified opportunities for Pakistan in artificial intelligence (AI). The country produces an estimated 75,000 IT graduates annually and recorded $4.6 billion in information and communication technology services exports in fiscal year 2025-26. Its planned $1 billion AI program through 2030 includes shared computing infrastructure, a sovereign multilingual model, 1,000 AI PhD scholarships and training for one million non-IT professionals.
However, the Bank warned that Pakistan’s AI ambitions could be held back by weak innovation, gaps in broadband and electricity access, and limited local-language training data. Only 3 percent of firms reported product innovation and 1 percent reported process innovation, compared with averages of 23 percent and 14 percent, respectively, among lower-middle-income peers.
The report said affordable AI applications designed to work on basic mobile devices, low-bandwidth connections and intermittent power could help expand adoption in sectors such as agriculture, health and education.
The World Bank said AI could improve productivity in an estimated 13 to 20 percent of jobs across MENAAP, while near-term automation threatened less than 10 percent of jobs. It also warned that the benefits could be unevenly distributed.
For Pakistan, the report points to the need to address energy and connectivity constraints, strengthen workforce skills and local data resources, and encourage private-sector investment while managing the economic and fiscal effects of higher fuel prices.
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