ADB says Pakistan’s economy stabilising but warns of significant downside risks

The Asian Development Bank (ADB) said on Friday that Pakistan’s economy had stabilised and begun to show stronger momentum, but “downside risks were significant”.

“Pakistan’s economy recovered as growth strengthened and inflation declined in fiscal year 2025 (FY2025, ended 30 June 2025), supported by tight macroeconomic policies and progress in economic reform,” the ADB said in a report today.

According to the Asian Development Outlook (ADO) April 2026, ADB’s annual flagship economic publication, Pakistan was expected to sustain its economic performance in the medium term, with real gross domestic product (GDP) growth forecast at 3.5% in FY2026 and 4.5% in FY2027, from 3.1% in FY2025, as manufacturing recovers and investment increases.

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

“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.”

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The report said that a prolonged Middle East conflict could weigh significantly on the economic outlook by slowing growth through higher energy and fertilizer costs, weakening agricultural and industrial output, “reducing remittances, and widening the current account deficit. Adherence to the economic adjustment program is therefore critical to strengthening resilience and enabling sustainable and inclusive growth”.

As per the report, average inflation was projected to rise to 6.4% in FY2026 and 6.5% in FY2027 due to surging oil prices and disrupted trade routes amid the Middle East conflict.

The central bank is expected to ease monetary policy cautiously to stabilise inflation within its medium-term target range of 5%–7%, said the ADB.

“In FY2026, growth will be supported by a rebound in private-sector investment, driven by the recent progress on reform measures and a stable foreign exchange market.

The effective implementation of the reform program is expected to foster a more stable macroeconomic environment and gradually remove structural barriers to growth.”

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Economic activity in both industry and services will benefit from monetary easing, and construction activity will be backed by fiscal incentives introduced in the FY2026 budget, alongside post‑flood reconstruction efforts.

Despite recent stabilisation and recovery, Pakistan’s economic outlook faces significant downside risks from global economic uncertainty, leading to elevated inflationary, fiscal, and external account pressures.

Addressing these challenges requires prudent macroeconomic policies and steadfast implementation of structural reforms, the report said.