ISLAMABAD: The Asian Development Bank (ADB) forecast Wednesday that Pakistan's economy will grow 3.7% in the current fiscal year, below the government's 4% budget target, while projecting inflation at 8.3%, above the official estimate of 7%.
The Manila-based lender said in its Asian Development Outlook September episode that Pakistan's gross domestic product growth is projected to remain at 3.7% in FY2027, maintaining its July forecast. The ADB had earlier projected 4.5% growth for the fiscal year in its April 2026 forecast.
"Average inflation is projected to rise to 8.3% in FY27, above the central bank's medium-term target range of 5%–7%, as elevated energy, logistics and agricultural input costs continue to affect domestic prices," the ADB said.
The bank warned the outlook faces significant downside risks. An escalation of the Middle East conflict could increase energy import costs, intensify inflation and disrupt labor markets in Gulf economies, affecting workers' 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, shortfalls in tax revenue, weather-related agricultural shocks, and delays in energy-sector and state-owned enterprise reforms. The ADB emphasized consistent implementation of reforms as critical to reinforcing fiscal and external stability and sustaining investor confidence.
The bank noted Pakistan's economic performance continued to strengthen in fiscal year 2026, which ended June 30, with growth accelerating to 3.7% from 3.2% in FY25. The expansion was broad-based, supported by resilient services, a rebound in manufacturing, recovery in agriculture and stronger private investment, although the Middle East conflict slowed activity in the final quarter.
Sustained implementation of economic reforms, improved external buffers, renewed access to international capital markets and recent sovereign credit rating upgrades are expected to support investor confidence and private investment. However, elevated energy prices and continued external uncertainty are expected to constrain further acceleration in 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 Emma Fan, ADB country director for Pakistan. "Maintaining reform momentum will be critical to unlock higher private investment, strengthen resilience to external shocks and achieve stronger and more inclusive growth."
Growth in FY26 was supported by expansion in manufacturing and services. Agriculture grew 2.9% despite flood-related losses to major crops, while private investment increased 8.6% amid lower borrowing costs and improved business confidence, the ADB said.
Fiscal consolidation continued during FY26, and gross international reserves increased, strengthening external resilience. Pakistan's sovereign credit ratings were upgraded by S&P in July 2026 and Moody's in August 2026. The country also regained access to international capital markets through Eurobond and Panda bond issuances in April and May 2026.
Inflation averaged 7.1% in FY26, compared with 4.5% in FY25, as rising food prices and higher global oil prices intensified price pressures in the second half of the year.
