ADB keeps Pakistan growth forecast at 3.7pc amid rising risks
Growth forecast remains below target
The Asian Development Bank (ADB) has kept Pakistan’s economic growth forecast at 3.7pc for FY2027. The projection is below the government’s 4pc budget target and remains unchanged from the bank’s July forecast.
“Pakistan’s gross domestic product growth is projected to remain at 3.7pc in FY2027”, the Manila-based lending agency said in its latest Asian Development Outlook. The ADB had earlier forecast growth of 4.5pc in its April 2026 outlook.
Inflation expected to rise
The ADB expects average inflation to reach 8.3pc in FY2027. This is above the government’s 7pc estimate and higher than the State Bank of Pakistan’s medium-term target range of 5pc to 7pc.
“Average inflation is projected to rise to 8.3pc in FY27, above the central bank’s medium-term target range of 5pc–7pc, as elevated energy, logistics, and agricultural input costs continue to affect domestic prices”, it added.
Middle East conflict poses risks
The bank warned that the economic outlook faces several downside risks, particularly from the ongoing Middle East conflict. A deeper conflict could push up energy import costs, increase inflation and affect labour markets in Gulf countries, potentially putting pressure on remittances.
“The reintroduction of austerity measures by the Pakistan government could also weigh on domestic demand and economic activity, particularly if expenditure restraint is more pronounced than anticipated, posing an additional downside risk to the economic outlook”, the ADB noted.
Other risks include tighter global financing conditions, weaker tax collection, weather-related damage to agriculture and delays in energy-sector and state-owned enterprise reforms. The ADB said steady implementation of reforms would remain important for fiscal stability, external stability and investor confidence.
FY26 growth shows improvement
Pakistan’s economy grew by 3.7pc in FY2026, up from 3.2pc in FY2025. The improvement was supported by services, manufacturing, agriculture and stronger private investment, although the Middle East conflict slowed activity in the final quarter.
Agriculture grew by 2.9pc despite flood-related crop losses, while private investment increased by 8.6pc as borrowing costs declined and business confidence improved. Fiscal consolidation also continued, while gross international reserves increased during the year.
Investor confidence gets support
The ADB said stronger external buffers, economic reforms, renewed access to international capital markets and recent sovereign credit rating upgrades could support investor confidence. Pakistan’s sovereign ratings were upgraded by S&P in July 2026 and Moody’s in August 2026.
Pakistan also regained access to international capital markets through Eurobond and Panda bond issuances in April and May 2026. However, high energy prices and continued external uncertainty could limit faster economic growth.
“Pakistan’s economy has made progress in strengthening macroeconomic stability over the past two years, with stronger growth, improved external buffers, restored market confidence, and sovereign credit rating upgrades reflecting the benefits of sustained reforms”, said ADB Country Director for Pakistan Emma Fan.
“Maintaining reform momentum will be critical to unlock higher private investment, strengthen resilience to external shocks, and achieve stronger and more inclusive growth.“
Inflation remains a key concern
Inflation averaged 7.1pc in FY2026, compared with 4.5pc in FY2025. Higher food prices and rising global oil prices increased price pressures during the second half of the fiscal year.
The latest ADB outlook shows that Pakistan has maintained growth, but the pace remains below the government’s target. At the same time, the higher inflation forecast points to continued pressure from energy, transport and production costs.
The outlook also shows that external developments could strongly affect Pakistan’s economy. Continued reforms, stronger reserves and improved investor confidence could provide support, while higher energy costs and regional uncertainty remain important challenges.
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