ISLAMABAD – The Asian Development Bank (ADB) has projected Pakistan’s economic growth at 3.5% for FY2026 and 4.5% for FY2027, while warning that prolonged instability in the Middle East could increase energy prices, disrupt trade routes, and put pressure on inflation and the external sector.
In its Asian Development Outlook April 2026, the bank said Pakistan’s growth outlook is being supported by a gradual recovery in manufacturing, improved construction activity, and a rise in private sector investment, backed by greater macroeconomic stability and improving business confidence.
The report said that large-scale manufacturing had strengthened in the first half of FY2026, while construction activity received a boost from fiscal incentives and post-flood rebuilding efforts. It added that reduced government borrowing needs could help expand credit availability for private businesses, particularly in SMEs and agriculture.
On inflation, the ADB expects a slight upward trend after a sharp decline in FY2025, forecasting it at 6.4% in FY2026 and 6.5% in FY2027. The increase is attributed to stronger demand in the economy as well as possible temporary disruptions in wheat supply and energy imports, especially oil and LNG shipments from regions near key global shipping routes.
The lender cautioned that Pakistan remains vulnerable to external shocks due to its dependence on imported energy. It warned that a prolonged conflict in the Middle East could raise production costs, reduce output in agriculture and industry, weaken remittance inflows from Gulf countries, and widen the current account deficit.
Despite these risks, the report highlighted significant macroeconomic stabilisation in FY2025. GDP growth improved to 3.1% from 2.6% a year earlier, inflation dropped sharply to 4.5% from 23.4%, the current account recorded a surplus, and foreign exchange reserves reached a three-year high of $14.5 billion. Fiscal consolidation also continued alongside progress under the International Monetary Fund (IMF) programme.
Sector-wise, growth in FY2025 was driven mainly by services and industry, while agriculture contracted due to high input costs and adverse weather conditions, including heavy monsoon rains and flooding. However, falling inflation and improved stability supported a rebound in investment, which rose by 12% after declining in FY2024.
The ADB cautioned that the outlook still faces significant downside risks and stressed that overly expansionary policies could reverse recent economic gains and revive external pressures.
It further urged Pakistan to accelerate structural reforms in taxation, energy, trade, investment, and state-owned enterprises to break recurring cycles of boom and bust and strengthen long-term resilience.
The bank also estimated that Pakistan will require an additional $220 million investment in agriculture across federal and provincial budgets to meet its 2030 climate adaptation goals.
Regionally, the ADB warned that ongoing tensions in the Middle East remain a key risk factor for developing Asia, as higher energy prices could increase inflation and production costs even if conditions stabilise in the near term.
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