Pakistan’s economy has recovered, with growth strengthening and inflation declining in fiscal year 2025, supported by tight macroeconomic policies and progress in economic reforms, according to a report issued by the Asian Development Bank (ADB) on Friday.
Asian Development Outlook (ADO) April 2026, the lender’s annual flagship economic publication, says Pakistan is expected to sustain its economic performance in the medium term amidst recovering manufacturing and investment increases, with real gross domestic product (GDP) growth forecast at 3.5% in FY2026 and 4.5% in FY2027, up from 3.1% in FY2025.
“Pakistan’s economy has stabilized 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,” she added.
The ADB has projected average inflation 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. It also expects the State Bank of Pakistan to ease monetary policy cautiously to stabilize inflation within its medium-term target range of 5–7%.
The lender’s report warns 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, it said.
In FY2026, the ADB expects a rebound in private-sector investment to support growth, driven by 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. Economic activity in both industry and services will benefit from monetary easing. Construction activity would be backed by fiscal incentives introduced in the FY2026 budget, alongside post‑flood reconstruction efforts.
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, states the report.