Mazaj News (Web Desk) The Asian Development Bank (Asian Development Bank) has revised Pakistan’s economic growth outlook upward, projecting 3.5 percent GDP growth for the current fiscal year. However, it has cautioned that ongoing global uncertainty—particularly linked to the Middle East situation—poses significant risks to stability.
In its latest Asian Development Outlook (ADO) April 2026, the Manila-based lender said Pakistan’s economy is expected to maintain steady momentum in the coming years, with growth forecast at 3.5 percent in FY2026 and 4.5 percent in FY2027, compared to 3.1 percent in FY2025. The improvement is expected to be driven by recovery in manufacturing activity and increased investment.
Previously, the bank had estimated 3 percent growth for the current fiscal year.
ADB Country Director for Pakistan Emma Fan said the economy has shown signs of stabilisation and improvement, supported by ongoing reforms despite a difficult external environment. She noted that growth prospects remain positive but stressed that risks remain elevated, making continued reform efforts essential to safeguard macroeconomic stability.
The report warned that inflation is expected to rise slightly to 6.4 percent in FY26 and 6.5 percent in FY27, mainly due to higher global oil prices and disruptions in trade routes linked to Middle East tensions. Since oil and gas form a large portion of Pakistan’s import bill, any price surge directly impacts inflation and external accounts.
The central bank is expected to proceed cautiously with monetary easing to keep inflation within its 5 to 7 percent target range.
ADB highlighted that a prolonged regional conflict could slow Pakistan’s growth by increasing energy and fertilizer costs, weakening agriculture and industry, reducing remittances, and widening the current account deficit.
According to the report, continued adherence to economic reforms under the adjustment program remains crucial for long-term resilience and sustainable growth.
Growth in FY26 is expected to be supported by rising private investment, improved investor confidence, and relative stability in the foreign exchange market. Easier monetary conditions and reduced government borrowing needs are likely to further support private sector lending, especially for small and medium enterprises.
Industrial and services sectors are also expected to benefit from monetary easing and improved macroeconomic conditions, while construction activity will gain from fiscal incentives and post-flood reconstruction projects.
Large-scale manufacturing has already shown strong recovery in the first half of FY26, rising 4.8 percent, led by automobiles, cement, and textiles, supported by lower inflation and improved business confidence. Early GDP estimates for Q1 FY26 also suggest that flood-related damage was less severe than initially expected.
Services growth has been supported by improvements in manufacturing, livestock, construction, and trade-related sectors, while construction has surged due to government incentives and rebuilding efforts following floods.
On the demand side, private investment remains a key driver, supported by stable financial conditions and improved liquidity in the banking system. The revival of privatisation efforts, including the sale of Pakistan International Airlines, is also expected to encourage further investment activity.
Household consumption is projected to recover gradually as inflation stabilises and incomes improve. Remittance inflows are expected to remain steady, helping support external balances and reconstruction needs.
However, the current account is expected to return to deficit territory in FY26 due to rising global energy prices. In the first seven months of FY26, the deficit reached $1.2 billion, compared to a surplus a year earlier, driven by higher imports and weaker export performance.
Imports have increased due to stronger domestic demand for machinery, vehicles, metals, and chemicals, while exports have declined, partly due to flood-related losses affecting rice shipments. Sugar exports were also suspended during the first half of the fiscal year to rebuild domestic stocks.
Remittances increased by 11.3 percent during the July–January period, helping offset some external pressure.
ADB also warned that rising oil prices and potential disruptions in Gulf economies could further strain Pakistan’s external account by increasing import costs and reducing remittance inflows.
Overall, the bank stressed that Pakistan’s outlook remains vulnerable to policy slippages and external shocks. It cautioned that overly expansionary policies could reverse recent stability and reintroduce balance-of-payments pressures.
Globally, rising geopolitical tensions and volatility in commodity markets—especially energy—remain key risks. A sharper increase in global interest rates or disruptions in trade flows could further weaken growth prospects across emerging economies, including Pakistan.
The report concluded that while Asia-Pacific growth remains resilient, supported by strong domestic demand, the region faces increasing pressure from energy price volatility, trade uncertainty, and financial tightening linked to global instability.