ADB holds Pakistan FY27 growth forecast at 3.7%, sees inflation at 8.3%

September 23, 2026 (MLN): Pakistan’s economic growth is expected to remain at 3.7% in FY2027, while inflation is projected to rise to 8.3% amid the continuing impact of the Middle East conflict and elevated global energy prices, according to the Asian Development Bank (ADB).

In its July 2026 Asian Development Outlook, the ADB maintained its FY2027 growth projection for Pakistan at 3.7%, unchanged from its FY2026 estimate. The bank raised its inflation forecast for FY2027 to 8.3%, compared with 7.2% projected for FY2026, placing price pressures above the central bank’s medium-term target range.

Pakistan’s economy expanded by 3.7% in FY2026, based on provisional official data cited by the ADB. The bank said continued implementation of the International Monetary Fund’s Extended Fund Facility (EFF), stronger investor confidence, renewed access to international capital markets and recent sovereign credit-rating upgrades have supported the country’s economic outlook.

Private investment to support growth

Private investment is expected to remain a key source of demand in FY2027 after registering an 8.6% real increase during FY2026.

The ADB said lower tariffs on industrial inputs under the National Tariff Policy 2025-2030 and a reduced corporate tax burden following the cut in super tax are expected to improve conditions for investment.

Ongoing fiscal consolidation could also lower the government’s requirement for domestic financing, creating greater room for private-sector credit.

Household consumption, however, is expected to remain restrained as higher global energy prices weigh on real incomes.

Services activity is projected to remain resilient, with information technology exports continuing to provide an important source of growth. Manufacturing growth may moderate as higher energy costs raise production expenses.

Construction activity is expected to benefit from government incentives, including lower property transaction taxes and a higher interest subsidy under the prime minister’s housing scheme.

Inflation seen rising to 8.3%

The ADB expects inflation to accelerate to 8.3% in FY2027 from its 7.2% forecast for FY2026, mainly due to continued spillovers from the Middle East conflict and higher energy costs.

The bank noted that elevated energy prices could feed through into transportation, food and other consumer costs, while disruptions to global supply chains could raise freight, insurance and import expenses.

The higher inflation outlook could also complicate monetary policy as price pressures remain above the central bank’s medium-term target range.

Current account deficit likely to widen

Pakistan’s current account deficit is expected to increase as domestic demand recovers and imports strengthen.

The ADB attributed the expected rise in imports to recovering manufacturing activity and continued disruptions in global energy markets. Higher freight and insurance costs could further increase the import bill even if petroleum prices decline.

Rice exports are expected to recover and partly offset the food-export shortfall recorded in the previous year. Meanwhile, IT-related services exports are projected to remain resilient, supported by the country’s expanding freelance and software-export base.

Workers’ remittances are expected to remain broadly stable as labor markets in Gulf economies stabilize. The ADB noted that reconstruction activity in Gulf countries following the conflict could eventually support labor demand, migration and remittance flows.

Foreign reserves projected above $21bn

External financing conditions and foreign-exchange reserves are expected to remain broadly supportive, backed by multilateral and bilateral official inflows as well as continued foreign-exchange purchases by the central bank.

Gross international reserves are projected to exceed $21 billion by the end of June 2027, providing around 3.3 months of import cover.

According to the ADB, this reserve position should provide near-term support for Pakistan’s external stability.

Middle East conflict poses key risk

The ADB identified an escalation in the Middle East conflict as a major downside risk for Pakistan’s economic outlook.

A further increase in energy import costs could intensify inflationary pressures, while prolonged disruptions in Gulf labor markets could weaken remittance inflows. Pakistan remains particularly exposed due to the significant share of petroleum products in its imports and the importance of Gulf economies as the country’s largest source of remittances.

Tighter global financial conditions also pose a risk, as higher external borrowing costs and weaker capital inflows could put additional pressure on Pakistan’s external and fiscal positions.

Domestically, failure to achieve the Federal Board of Revenue’s tax-collection target could raise financing requirements and crowd out private investment, potentially weakening the expected recovery in demand.

Weather-related agricultural shocks could further affect the outlook by reducing crop production, weakening export earnings and increasing food-price pressures.

Structural reforms remain critical

The ADB said consistent implementation of structural reforms will be essential for strengthening Pakistan’s economic resilience and supporting more inclusive medium-term growth.

The bank highlighted greater fiscal transparency, stronger tax administration and more efficient public spending as measures that could strengthen fiscal credibility and reduce borrowing costs.

In the energy sector, the ADB said cost-reflective tariffs, improved billing and collection, and greater private-sector participation in electricity distribution could enhance industrial competitiveness.

Reforms and privatization of state-owned enterprises could help attract private investment and improve productivity, while continued implementation of the National Tariff Policy could reduce industrial input costs and support export diversification.

The ADB also pointed to Pakistan’s expanding IT and digital-services sector as an opportunity to develop export-led growth that is less vulnerable to commodity-price volatility.

IMF program remains economic anchor

The ADB said continued progress under the IMF’s EFF program remains an important anchor for Pakistan’s macroeconomic outlook.

The July 2026 outlook noted that Pakistan’s return to international capital markets and recent sovereign credit-rating upgrades have strengthened investor confidence and lowered financing costs from their FY2024 peak.

However, the bank cautioned that delays in reforms, particularly in the energy sector and state-owned enterprises, could undermine productivity improvements, investor confidence and progress under the IMF program.

Overall, the ADB has kept Pakistan’s FY2027 growth forecast at 3.7% while projecting inflation at 8.3%, with the economic outlook remaining sensitive to global energy prices, geopolitical developments, external financing conditions and the pace of domestic reforms.

Copyright Mettis Link News