KEY POINTS
- ADB forecasts Pakistan’s GDP growth at 2.5% in FY2025, 3.0% in FY2026
- Outlook contingent on sustained reforms and fiscal consolidation
- Energy sector losses, weak tax base flagged as major risks
- Climate and disaster resilience deemed critical for long-term stability
ISLAMABAD: Pakistan’s economic growth prospects depend on sustained structural reforms and stronger resilience to natural disasters, the Asian Development Bank (ADB) said on Tuesday, projecting GDP growth of 3.0% in fiscal year 2026 as macroeconomic stability gradually improves.
ADB’s latest report on the Pakistan economy projected gross domestic product (GDP) growth of 3.0 per cent in FY2026 as macroeconomic stability deepens through sustained reforms addressing structural vulnerabilities.
In its ‘Asian Development Outlook (ADO) September 2025,’ the Manila-based lender reported that macroeconomic stability would depend on Pakistan’s ability to follow through on structural reforms.
These would include broadening the tax base, ensuring cost recovery in the energy sector, and pursuing fiscal consolidation to reduce deficits.
“The government needs to strengthen governance of state-owned enterprises and keep monetary policy tight to curb inflation,” the report maintained.
“Pakistan’s improved macro-economic conditions contributed to an uptick in growth in fiscal year 2025 (ended 30 June 2025), underpinned by increased investment driven by continued policy reforms and economic stability,” it added.
The economic reform process progressed considerably under the IMF Extended Fund Facility arrangement, which began in October 2024. Policy consistency and climate resilience remain vital to maintaining the growth momentum. Downside risks to the outlook remain high.
“Pakistan’s growth prospects remain positive,” said ADB Country Director for Pakistan Emma Fan.
“However, the country continues to face structural challenges, compounded by recurring disasters such as the recent floods. In this context, consistent reforms and policy implementation are essential for reinforcing policy credibility, sustaining economic momentum, and enhancing the country’s resilience.”
In FY2026, economic activity is expected to strengthen, supported by improved external buffers and renewed business confidence following the US-Pakistan trade agreement.
However, the damage caused to infrastructure and farmland by the recent floods may weigh on growth. Recovery and rehabilitation efforts, supported by fiscal incentives for the construction sector in the FY2026 budget, are expected to offset the adverse impact.
Average inflation is projected to increase to 6.0% in FY2026, reflecting the impact of flood-related supply chain disruptions on food prices and the increase in gas tariffs.
In response, the central bank is expected to adopt a cautious approach to easing monetary policy to stabilise inflation within its medium-term target range of 5%–7%.
ADB is a prominent multilateral development bank promoting inclusive, resilient, and sustainable growth across Asia and the Pacific.
Collaborating with its members and partners to address complex challenges, ADB utilises innovative financial tools and strategic alliances to improve lives, develop quality infrastructure, and protect our planet. Established in 1966, ADB is owned by 69 members, 50 of whom are from the region.
