ADB Holds Pakistan's 2027 Growth Forecast at 3.7 Percent

The Asian Development Bank has kept its economic growth forecast for Pakistan unchanged. In its Asian Development Outlook for September, the Manila-based lender projects a 3.7 percent expansion for the fiscal year ending June 2027. This figure falls short of the government's own budget target of 4 percent.

Economic Projections and Risks

The ADB also forecasts average inflation to rise to 8.3 percent for FY2027. This is above the State Bank of Pakistan's medium-term target range of 5 to 7 percent. The bank attributes persistent price pressures to elevated costs for energy, logistics, and agricultural inputs.

The economic outlook faces significant downside risks. A major concern is the potential for an escalation of the Middle East conflict. Such an escalation could increase Pakistan's energy import costs, intensify inflation, and disrupt labour markets in Gulf economies. This disruption could affect the flow of workers' remittances, a critical source of foreign exchange.

Domestic policy also presents a risk. "The reintroduction of austerity measures by the Pakistan government could also weigh on domestic demand and economic activity," the ADB noted. It warned this would pose an additional downside risk if expenditure restraint is more pronounced than anticipated. Other highlighted risks include tighter global financing conditions, tax revenue shortfalls, weather-related agricultural shocks, and delays in reforms for the energy sector and state-owned enterprises.

Recent Economic Performance

Pakistan's economy showed strengthening performance in the fiscal year that ended on June 30, 2026. Growth accelerated to 3.7 percent, up from 3.2 percent in FY2025. This expansion was broad-based. It was supported by resilient services, a rebound in manufacturing, a recovery in agriculture, and stronger private investment. However, the Middle East conflict slowed economic activity in the final quarter of the fiscal year.

Growth in FY26 was supported by expansion in manufacturing and services. The agriculture sector grew by 2.9 percent despite flood-related losses to major crops. Private investment increased by 8.6 percent amid lower borrowing costs and improved business confidence.

Fiscal consolidation continued during the year. Gross international reserves increased, which strengthened external resilience. Inflation averaged 7.1 percent in FY26, compared with 4.5 percent in FY25. Rising food prices and higher global oil prices intensified price pressures during the second half of the year.

Reform Momentum and Market Confidence

The ADB emphasised that consistent implementation of reforms is critical. It is needed to reinforce fiscal and external stability and to sustain investor confidence. Sustained reform implementation, improved external buffers, renewed access to international capital markets, and recent sovereign credit rating upgrades are expected to support private investment.

Pakistan's sovereign credit ratings were upgraded by S&P in July 2026 and by Moody's in August 2026. These upgrades reflect improved macroeconomic stability, stronger external buffers, and continued reform implementation. The country also regained access to international capital markets through Eurobond and Panda bond issuances in April and May 2026.

ADB Country Director for Pakistan Emma Fan stated that the economy has made progress in strengthening macroeconomic stability over the past two years. "Maintaining reform momentum will be critical to unlock higher private investment, strengthen resilience to external shocks, and achieve stronger and more inclusive growth," Fan said. Elevated energy prices and continued external uncertainty, including lingering effects of the Middle East conflict, are expected to constrain further acceleration in growth.