Asian Development Bank Maintains Pakistan Growth Forecast at 3.7pc

The Asian Development Bank has maintained its economic growth forecast for Pakistan at 3.7 per cent for the current fiscal year while projecting inflation at 8.3 per cent. Higher energy, logistics and agricultural input costs remain important pressures on domestic prices.

The projection in the September edition of the Asian Development Outlook is unchanged from the bank's July forecast, but it remains below the government's 4 per cent growth target. The ADB had projected stronger growth of 4.5 per cent in its April 2026 outlook.

Recovery continues at a measured pace

The development lender expects Pakistan's economic recovery to continue, although expansion may remain constrained by external pressures and geopolitical uncertainty. Inflation is forecast to stay above the State Bank of Pakistan's medium-term target range of 5 to 7 per cent.

Energy costs, transport expenses and agricultural inputs are among the factors likely to influence consumer prices. Their effect reaches households directly and also raises operating costs for farms, manufacturers and logistics businesses.

Middle East conflict adds uncertainty

The ADB highlighted the potential effect of a prolonged Middle East conflict on Pakistan through higher energy import costs, supply-chain disruption and pressure on remittances. A further escalation could lift global energy prices and affect employment conditions in Gulf economies.

Those risks are particularly relevant for Pakistan because imported fuel affects the trade balance, transport costs and electricity prices. Changes in Gulf labour markets could also have implications for Pakistani workers and the remittances sent to their families.

Domestic risks to the outlook

The bank identified tighter global financing conditions, possible tax-revenue shortfalls, weather-related damage to agriculture and delays in energy-sector and state-owned enterprise reforms as additional risks. Renewed austerity could also weigh on domestic demand if expenditure restraint becomes more extensive than anticipated.

These pressures mean that the growth figure is not guaranteed. The pace of reform, weather conditions and developments in global commodity markets will influence whether the economy performs in line with the forecast.

FY2026 performance improved

Despite the risks, the ADB said Pakistan's performance strengthened in fiscal year 2026. The economy grew by 3.7 per cent, compared with 3.2 per cent in the preceding year, supported by services, manufacturing, a recovery in agriculture and stronger private investment.

Agriculture expanded by 2.9 per cent despite flood-related damage to major crops. Private investment rose by 8.6 per cent as lower borrowing costs and improved business confidence supported activity.

The bank also pointed to fiscal consolidation and higher gross international reserves as factors that improved external resilience. Stronger buffers give policymakers more room to manage shocks, although they do not remove the need for continued fiscal and structural reform.

Market confidence and investment

Improved macroeconomic stability, renewed access to international capital markets and sovereign credit-rating upgrades have helped investor confidence. Pakistan received upgrades from S&P in July and Moody's in August 2026 and returned to international markets through Eurobond and Panda bond issuances.

ADB country director for Pakistan Emma Fan said the country had made progress in strengthening macroeconomic stability over the past two years. She linked improvements in growth, external buffers, market confidence and credit ratings to continued reform efforts.

Fan said maintaining momentum would be important for attracting private investment, strengthening resilience to external shocks and creating conditions for broader and more inclusive growth.

What the forecast means

The assessment presents a recovery that is continuing but remains exposed to domestic and international risks. Growth below the government's target and inflation above the central bank's preferred range leave limited room for complacency.

Fiscal and structural reforms, better investment conditions and stronger external buffers will remain central to the durability of the recovery. Developments in energy markets and the implementation of domestic reforms are likely to determine whether Pakistan can meet or exceed the ADB's forecast.