The Asian Development Bank (ADB) has upgraded Pakistan’s economic growth forecast to 3.5% for FY2026, signaling improving momentum in the country’s economy despite rising global uncertainties.
In its latest Asian Development Outlook (April 2026) report, the Manila-based lender projected that Pakistan’s GDP growth will further rise to 4.5% in FY2027, driven by recovery in manufacturing and increased private investment.
Economic Recovery Gains Momentum
According to ADB, Pakistan’s economy has stabilised and entered a recovery phase, supported by structural reforms and improved macroeconomic conditions.
ADB Country Director Emma Fan noted that progress on reforms has helped build confidence, paving the way for sustained growth.
Large-scale manufacturing showed strong recovery, growing by 4.8% in the first half of FY2026, with key sectors such as automobiles, cement, and textiles leading the rebound.
Meanwhile, the services sector expanded by 3.7%, supported by gains in trade, transport, and construction.
Construction and Investment Driving Growth
The report highlights a sharp 21% growth in construction activity, fueled by:
- Fiscal incentives in the FY2026 budget
- Post-flood reconstruction efforts
- Improved investor confidence
Private sector investment is expected to remain a key driver, aided by:
- Lower inflation
- Stable exchange rate
- Reduced government borrowing
The revival of privatisation, including the planned restructuring of Pakistan International Airlines, is also expected to boost investor sentiment.
Inflation and Policy Outlook
ADB projects inflation to rise to:
- 6.4% in FY2026
- 6.5% in FY2027
The increase is largely attributed to higher global oil prices and disrupted trade routes due to the ongoing Middle East conflict.
Pakistan’s central bank is expected to adopt a cautious monetary easing policy to keep inflation within its target range of 5–7%.
External Pressures and Trade Deficit
Pakistan’s current account is projected to return to deficit as imports surge due to rising energy costs.
Key trends include:
- Imports up 9.8% (machinery, automobiles, chemicals)
- Exports down 5.5%, mainly due to flood-related crop losses
- Remittances up 11.3% to $23.2 billion, providing some cushion
However, higher oil prices could significantly widen the trade deficit in the coming months.
Major Risks: Middle East Crisis
ADB warned that a prolonged conflict in the Middle East could:
- Increase energy and fertiliser costs
- Reduce agricultural and industrial output
- Lower remittances from Gulf countries
- Widen the current account deficit
Such developments could slow Pakistan’s economic growth and fuel inflationary pressures.
Outlook: Growth with Caution
While Pakistan’s economy shows clear signs of recovery, ADB stressed that continued reforms are critical to sustain growth.
The report cautioned that:
- Policy slippages could reverse stability
- Overly loose economic policies may trigger balance-of-payments pressures
- Global uncertainty could disrupt trade and investment flows
Regional Outlook
ADB expects growth across developing Asia to moderate to 5.1% in 2026–27, as rising energy prices and geopolitical tensions weigh on economic activity.
