ADB projects Pakistan growth at 3.5pc in FY2026 and 4.5pc in FY2027

ISLAMABAD: Pakistan’s economy is projected to expand by 3.5% in fiscal year 2026 and 4.5% in FY2027, with the Asian Development Bank (ADB) saying the recovery is expected to be supported by stronger manufacturing activity and higher investment after stabilisation in FY2025.

In its Asian Development Outlook, April 2026, released on Friday, the ADB said economic growth had already improved to 3.1% in FY2025. The bank attributed that performance to tight macroeconomic policies and progress on reforms.

ADB Country Director Emma Fan said, “Pakistan’s economy has stabilised and begun to show stronger momentum, supported by progress in implementing key economic reforms amid a challenging global environment. 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.”

Growth in FY2026 is likely to be backed by a rebound in private-sector investment, helped by reform progress and a stable foreign exchange market. Industrial and services activity is also expected to gain from cautious monetary easing.

According to the ADB, the construction sector is likely to receive support from fiscal incentives included in the FY2026 budget as well as reconstruction work following floods.

Inflation and external risks

While presenting a more positive growth outlook, the ADB also warned of inflationary pressures and external vulnerabilities. It projected inflation at 6.4% in FY2026 and 6.5% in FY2027.

The bank said the expected rise in inflation would be driven by higher global oil prices and trade disruptions linked to tensions in the Middle East. Oil and gas imports make up a major part of Pakistan’s import bill, leaving the economy exposed to external shocks.

A prolonged conflict in the Middle East could further weaken the outlook by raising energy and fertiliser costs, hurting agricultural and industrial production, lowering remittances and widening the current account deficit.

Need for continued reforms

Despite recent improvement, the ADB said Pakistan’s economic outlook remains vulnerable to global uncertainty, including the risk of renewed inflationary, fiscal and external pressures.

The bank stressed that prudent macroeconomic management and continued structural reforms would be important for maintaining durable and inclusive growth. 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 latest assessment comes as Pakistan continues efforts to consolidate economic stability while seeking to sustain recovery momentum in the coming fiscal years.