ADB sees GDP growth at 3.5pc in FY26, 4.5pc in next fiscal year
ISLAMABAD: The Asian Development Bank (ADB) has projected Pakistan’s GDP growth to accelerate to 3.5 percent in fiscal year 2026 and 4.5 percent in fiscal year 2027, with inflation estimated at 6.4 percent and 6.5 percent, respectively.
Despite recent stabilization 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 Bank noted in its latest report Asian Development Outlook (ADO).
Pakistan is at a crucial moment with its economy stabilized and efforts underway to address key structural issues in energy, trade, investment, and state-owned enterprises. However, expectations of rapid growth without fully tackling these issues could lead to reform fatigue and risk policy slippage.
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Deploying overly loose macroeconomic policies to support higher growth could revive balance-of-payments pressures and threaten hard-earned macroeconomic stability. Externally, rising geopolitical tensions and uncertainties, especially from a prolonged conflict in the Middle East, could worsen the volatility in global commodity prices, particularly energy, and disrupt international trade. This has potential implications for domestic inflation and the external position, weighing on the growth outlook, it added.
The report noted that the fiscal year 2026 increase reflects a quicker-than-anticipated recovery in manufacturing and less crop damage from floods than initially expected.
Large-scale manufacturing output rebounded strongly in the first half of fiscal year 2026 (July–December), growing by 4.8 percent as automobiles, cement, and textiles picked up, supported by accommodative monetary policy, low inflation, and renewed confidence. Provisional first quarter (Q1) FY2026 GDP data indicates that damage from flooding is much less than initially feared.
Services are expected to benefit from increases in manufacturing and greater macroeconomic stability. Growth was provisionally recorded at 3.7 percent in Q1 FY2026, driven by livestock, large-scale manufacturing, construction, utilities, wholesale and retail trade, and transport and storage. Fiscal incentives for construction announced in the FY2026 budget and reconstruction efforts after the floods have boosted construction, which grew by 21.0 percent in Q1 FY2026.
Inflation is projected to increase to 6.4 percent in FY2026 and 6.5 percent in FY2027, reflecting a pickup in economic activity and a temporary disruption
to wheat supplies and crude oil and liquefied natural gas from countries near the Strait of Hormuz.
Headline inflation has risen during FY2026, increasing from 3.2 percent in June 2025 to 7.0 percent in February 2026, because of rising food prices—particularly for wheat and related products—and higher energy costs following the 1 July increase in gas prices.
Inflation during the first 8 months (July–February) of FY2026 averaged 5.5 percent. Surging oil prices and disrupted trade routes amid the Middle East conflict will drive inflation and import costs up further, with oil and gas constituting a large share of Pakistan’s imports. Inflation is anticipated to increase in the coming months, most likely breaching the upper bound of the central bank’s medium-term target range of 5 percent–7 percent. The central bank is committed to keeping the real policy rate sufficiently positive to anchor inflation expectations within the medium-term target range.
The Bank stated that the current account is projected to return to a deficit in FY2026 as global energy prices rise amid the Middle East conflict. The deficit reached USD1.2 billion in the first 7 months of FY2026 (July– January)—reversing a USD564 million surplus a year earlier and reflecting a 28.9 percent increase in the deficit of goods and services to USD20.5 billion—because of a sharp rise in imports and continuing weak exports.
Higher growth helped merchandise imports grow by 9.8 percent, reflecting higher imports of automobiles, machinery, metals, and chemicals.
Copyright Business Recorder, 2026