Flags recovery but warns inflation may rise to 6.5% by FY2027 amid global uncertainty, Middle East tensions
A worker walks past inside the Asian Development Bank (ADB) headquarters in Manila. Photo: Reuters/ File
Pakistan’s economy is expected to grow by 3.5% in fiscal year 2026 and 4.5% in FY2027, as a recovery in manufacturing and rising investment sustain momentum following stabilisation in FY2025, the Asian Development Bank said on Friday.
In its Asian Development Outlook, April 2026, the bank said economic growth had already strengthened to 3.1% in FY2025, supported by tight macroeconomic policies and progress on reforms.
“Pakistan’s economy has stabilised and begun to show stronger momentum, supported by progress in implementing key economic reforms amid a challenging global environment,” said ADB Country Director Emma Fan.
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“Growth is expected to continue in 2026 and 2027, but downside risks are significant. Sustained reform efforts are critical to preserve the growth momentum and bolster fiscal and external buffers against global shocks.”
The report warned, however, that inflation is projected to rise to 6.4% in FY2026 and 6.5% in FY2027, driven by higher global oil prices and trade disruptions linked to tensions in the Middle East. Oil and gas imports form a significant portion of Pakistan’s import bill, making the economy vulnerable to external shocks.
A prolonged Middle East conflict could further strain the outlook by increasing energy and fertiliser costs, weakening agricultural and industrial output, reducing remittances and widening the current account deficit, it noted.
The ADB said growth in FY2026 would be supported by a rebound in private-sector investment, aided by reform progress and a stable foreign exchange market.
Economic activity in industry and services is also expected to benefit from cautious monetary easing, while construction will be supported by fiscal incentives in the FY2026 budget and post-flood reconstruction efforts.
Despite recent gains, the bank cautioned that Pakistan’s economic outlook remains exposed to global uncertainty, with risks of renewed inflationary, fiscal and external pressures. It stressed that prudent macroeconomic management and sustained structural reforms would be key to ensuring durable and inclusive growth.
