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Preetha Renganarayanan
30 October 2026 |
On 06 October 2026, the World Bank Group released its latest economic update for the Middle East, North Africa, Afghanistan and Pakistan (MENAAP) region titled “From Divide to Opportunity: AI, Jobs, and Growth.” The report analyses the economic consequences of the war in Iran, which is projected to drive a 2.1 per cent contraction in regional output in 2026, following 3.3 per cent growth in 2025. It notes that, as the region confronts the immediate consequences of conflict and economic disruption, it must also prepare for a second transformation that is unfolding i.e. the rise of artificial intelligence (AI). Pakistan makes a prominent feature across both the dimensions, facing persistent poverty and external economic pressures, at the same time, looking to strengthen its position in the AI ecosystem.
The following are five key takeaways from the report.
1. Pakistan accounts for nearly half of MENAAP’s extreme poor
Currently, MENAAP accounts for 14 per cent of the world’s extreme poor, second only to Sub-Saharan Africa. It is now the only region where poverty remains above pre-pandemic levels. Within MENAAP, this burden is highly concentrated, where Pakistan accounts for about 48 per cent of people living below poverty, while Afghanistan, Syria and Yemen jointly account for another 47 per cent. The World Bank notes a 6.4 percentage point increase in Pakistan’s extreme poverty rate between 2018-19 and 2024-25. The country’s poverty landscape is reportedly driven by a succession of adverse shocks, including the COVID-19 pandemic, the devastating 2022 floods, a macroeconomic crisis of high inflation, currency depreciation, and a prolonged period of economic adjustment. Pakistan’s large population size when compared to many other MENAAP countries is an important consideration when interpreting this figure. Nonetheless, the fact that it accounts for nearly half of the region’s extreme poor, once again brings focus to the country’s longstanding development challenges.
2. Pakistan’s growth outlook improves, but economic vulnerabilities persist
The World Bank identifies domestic demand as the key driver of growth among MENAAP’s larger oil importers. This is observed in Pakistan along with countries like Egypt and Morocco. In Pakistan, growth is expected to increase from 3.2 per cent in FY 2024-25 to 3.7 per cent in FY 2025-26 as services, manufacturing, and livestock production reportedly remain resilient despite rising import costs. That said, Pakistan’s growth outlook remains vulnerable to external shocks and economic pressures. Inflation rose to around 11 per cent by mid-2026, whereas higher energy and transport costs, along with debt and financing pressures could limit the longevity of growth and its benefits for households.
3. Food insecurity and a ‘stronger-than-usual El Niño’ adds to the existing pressures for Pakistan’s vulnerable households
The intersection of conflict-related price pressures and climate risks could add to food insecurity risks in Pakistan. Apart from the West Bank, Gaza and Yemen, the World Bank identifies significant food-security pressures in Pakistan, Afghanistan, Djibouti and Lebanon. This vulnerability could sharpen as disruptions to energy, fertiliser, grain and shipping markets increase agricultural input and transport costs. Higher prices and weaker growth could impact household purchasing power, while declining humanitarian funding limits support for development.
A ‘stronger-than-usual El Niño,’ expected in late 2026, could take a further toll on Pakistan’s already sensitive food-security situation. For Pakistan, the World Bank identifies changing monsoon conditions as a direct channel of exposure, with potential consequences of heat stress, erratic rainfall, drought, localised flooding and crop losses. Although the exact country-level effects remain uncertain, the intersection of climate risks and increased food costs makes agricultural production and food affordability key concerns for Pakistan’s vulnerable households.
4. Pakistan is positioning itself as a ‘talent-led AI services exporter’ and is ramping up investment in a domestic AI ecosystem
Between 2005 and 2024, the total global value of exports of digitally delivered services more than quadrupled. In the MENAAP region, the value of these exports increased by a factor of six, making digital services an important growth vector for the region’s middle and low-income economies. Pakistan is among the top five global suppliers of services on major online platforms across more than 2,700 skill areas. It has also set the largest absolute target for AI literacy, aiming to train 200,000 individuals a year, with 3,000 postgraduate scholarships. The country’s AI ambition also goes beyond exporting services to building a domestic AI ecosystem that supports its national priorities. In its national AI strategy, it identifies agriculture-related applications, including irrigation management, yield estimation and food-security decisions, as priorities for AI deployment. Nonetheless, a caveat to note here is that these figures denote targets and ambitions, and not outcomes; the report also highlights gaps between Pakistan’s AI aspirations and adoption.
5. Pakistan’s digital infrastructure provides a foundation for AI adoption, but weak innovation and private-sector dynamism remain critical constraints
The World Bank finds that Pakistan while performs relatively better on digital infrastructure when compared to countries at similar income levels, it remains weak on innovation and economic integration. Only 3 per cent of Pakistani firms reported introducing a new product or service in the last three years, while just 1 per cent reported new or improved processes. In the whole of MENAAP, only 9 per cent of firms invest in research and development, compared with 11 per cent in emerging market and developing economies outside the region.
The report also underlines gaps in AI localisation, usage and foundational capital. Urdu and other regional languages remain underrepresented in AI training data. In addition, limited skills, weak firm-level adoption and regulatory gaps also limits productive use. Thus, Pakistan’s ambition to develop locally adapted AI solutions depends on factors beyond connectivity and training targets. To transition its digital foundations into long-term productivity gains, Pakistan must strengthen innovation, private-sector investment and the broader institutional conditions for effective adoption.
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