The Asian Development Bank (ADB) has said that Pakistan’s economy is showing signs of resilience, with sustained reforms and climate preparedness identified as key enablers for future growth. In its Asian Development Outlook (ADO) September 2025 report, the bank highlighted that macroeconomic stability and structural reforms have strengthened investment flows, boosting confidence in the country’s medium-term prospects.
The report forecasts Pakistan’s real gross domestic product (GDP) growth at 3 percent for fiscal year 2026, building on improved macroeconomic fundamentals and the continuity of reforms under the International Monetary Fund’s Extended Fund Facility (EFF), which commenced in October 2024. The ADB emphasized that while growth momentum is positive, vulnerabilities persist, particularly with recurring climate-related disasters and the country’s reliance on external financing.
ADB Country Director for Pakistan, Emma Fan, noted that Pakistan’s economic outlook remains encouraging but requires consistent reforms to reinforce policy credibility. “Pakistan’s growth prospects remain positive. 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,” she said.
The ADB observed that while economic activity is expected to strengthen in the new fiscal year, recent floods have dealt a blow to infrastructure and farmland. This disruption, according to the report, could weigh on growth. Nonetheless, fiscal incentives announced for the construction sector in the FY2026 budget are anticipated to provide partial relief by supporting recovery and rehabilitation efforts.
Inflation is projected to average around 6 percent in FY2026, driven by flood-related supply chain disruptions in food markets and adjustments in gas tariffs. The central bank is expected to maintain a cautious monetary policy stance, aiming to stabilize inflation within its target range of 5–7 percent. At the same time, investment is likely to increase on the back of renewed business confidence, declining interest rates, and fiscal consolidation that eases government borrowing and allows banks to lend more actively to the private sector.
The report also highlighted several supportive policy measures, including tariff reforms under the National Tariff Policy 2025–2030 and a digitalized tax refund system for exporters. These initiatives are expected to improve competitiveness in external markets while stimulating private investment.
Workers’ remittances remain a critical component of external stability. The report predicts inflows will be supported by a stable exchange rate framework and the need to provide relief to families affected by the floods. While private consumption may soften due to reduced agricultural output, stronger remittances are likely to offset some of this decline.
On the fiscal front, the FY2026 budget targets a primary surplus of 2.4 percent of GDP and an overall deficit of 3.9 percent, with tax revenues expected to climb to 13.2 percent of GDP through better administration and policy enforcement. The ADB noted that fiscal consolidation is key to sustaining credibility and freeing up resources for private sector-led growth.
In terms of external balance, the bank forecast stability in the medium term. While exports may be constrained by disruptions to rice and cotton production, improved liquidity from faster tax refunds and lower production costs under supportive monetary policy could provide relief. Imports are expected to rise, driven by increased demand for food and raw materials, which may widen the trade deficit. However, continued flexibility in the foreign exchange market and resilience in remittance inflows are expected to keep the current account deficit manageable.
The report further projected that gross international reserves could rise to $17.7 billion by June 2026, offering 2.8 months of import cover, supported by multilateral and bilateral inflows, including flood relief and assistance, alongside active reserve management by the central bank.
By combining structural reforms with robust climate resilience strategies, the ADB believes Pakistan can reinforce policy credibility, sustain momentum, and build an economy that withstands both internal and external shocks.
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