ISLAMABAD: The Asian Development Bank (ADB) has maintained its forecast for Pakistan’s economic growth at 3.7% for the fiscal year 2027, while projecting inflation to rise to 8.3%.
In its September 2026 Asian Development Outlook, the ADB warned that higher energy and import costs, along with continued geopolitical tensions, could create challenges for Pakistan’s economic recovery.
The bank said Pakistan’s economy grew by 3.7% in FY2026, compared with 3.2% in the previous fiscal year. Growth was supported by improved credit conditions, stronger business confidence and expansion across major sectors.
Economic activity averaged around 4% during the first three quarters of FY2026. However, growth slowed during the April-June period as the impact of the Middle East conflict and the government’s measures in response to it weakened domestic demand.
Agriculture expanded by 2.9%, industrial production increased by 3.5%, while the services sector grew by 4.1%. Manufacturing recorded growth of 6.6%, while information and communications expanded by 7.5%, supported by stronger exports of services.
Private investment emerged as an important source of growth, increasing by 8.6% in real terms during FY2026. The ADB attributed the rise to lower borrowing costs and improved business confidence.
Household consumption, however, grew only 0.8%, down from 2.1% in FY2025. The bank linked the slower growth to higher global energy prices and their impact on household purchasing power.
Government consumption increased by 11.2%, while real exports of goods and services rose 5.9%. Real imports, meanwhile, declined by 6.8%.
The ADB said inflation had become a significant challenge for Pakistan’s economy. Average inflation rose to 7.1% in FY2026 from 4.5% a year earlier, with price pressures increasing sharply during the second half of the fiscal year.
Headline inflation reached 11.7% in May after a substantial increase in fuel prices. It later eased to 11.1% in June and 9.2% in July as international energy pressures moderated.
For FY2027, the ADB expects inflation to average 8.3%, which would remain above the State Bank of Pakistan’s medium-term target range of 5-7%.
The bank expects inflation to gradually decline and return to the target range during the second half of FY2027. However, it warned that fuel, transportation, fertiliser and other agricultural input costs could keep prices elevated.
The ADB also noted that stronger economic activity and higher import costs could place pressure on the exchange rate and increase imported inflation.
It said the State Bank would face a difficult policy balance between supporting economic growth and bringing inflation back within its target range.
Pakistan’s consolidated budget deficit narrowed to 2.6% of GDP in FY2026 from 5.4% a year earlier. The country’s primary surplus reached 2.9% of GDP, exceeding the 2.6% target set under the International Monetary Fund’s Extended Fund Facility programme.
However, the ADB said much of the improvement came from lower interest payments rather than a significant expansion of the tax base.
Federal Board of Revenue collections increased by 10.8% year-on-year but remained around Rs969 billion below the IMF programme benchmark.
The country’s current account remained broadly balanced, recording a deficit of $304 million, equivalent to 0.1% of GDP, compared with a surplus of $1.8 billion in FY2025.
The merchandise trade deficit widened to $33.7 billion from $26.8 billion. Goods exports declined 4.7% to $30.8 billion, while imports increased 9% to $64.5 billion.
Remittances provided important support to the external account. Workers’ remittances rose 8.6% to $41.6 billion, while the services deficit narrowed to $2 billion as exports of IT, business services and travel increased.
Pakistan also gained better access to international financing during the year, issuing a $750 million Eurobond and a $250 million Panda bond in April and May.
Foreign exchange reserves rose from $14.5 billion at the end of June 2025 to $18.5 billion by June 2026. This increased import cover to around 2.9 months.
The ADB said implementation of the IMF programme, renewed access to international capital markets and improvements in sovereign credit ratings had strengthened investor confidence and lowered financing costs.
