In its Asian Development Outlook April 2026 report, the ADB said growth in FY2026 is expected to be driven by a recovery in manufacturing, improved construction activity, and rising private investment, supported by greater macroeconomic stability and improving business confidence.
The report noted that large-scale manufacturing has already shown strong recovery in the first half of FY2026, while fiscal incentives and post-flood reconstruction efforts have boosted the construction sector. It added that private investment is likely to increase further as reduced government borrowing creates more room for private-sector credit, particularly for SMEs and agriculture.
However, the ADB warned that inflation is expected to rise again after sharp declines in FY2025, projecting it at 6.4% in FY2026 and 6.5% in FY2027. It attributed this to stronger domestic demand as well as disruptions in fuel and wheat supply chains linked to instability around the Strait of Hormuz.
The report identified rising global oil and gas prices as a key risk for Pakistan, noting the country’s heavy reliance on energy imports. It cautioned that a prolonged Middle East conflict could increase energy and fertilizer costs, reduce agricultural and industrial output, and negatively affect remittances from Gulf countries, ultimately widening the current account deficit.
The ADB highlighted that Pakistan achieved notable macroeconomic stabilisation in FY2025, with GDP growth rising to 3.1%, inflation falling sharply to 4.5%, and foreign exchange reserves reaching a three-year high of $14.5 billion. It also pointed to improved fiscal discipline and continued progress under the International Monetary Fund’s Extended Fund Facility.
Despite the improved outlook, the bank warned that risks remain elevated. It urged policymakers to avoid overly expansionary policies that could reverse recent gains in stability and warned against returning to cyclical boom-bust patterns.
The report further stressed the need for long-term structural reforms in taxation, energy pricing, trade, investment, and state-owned enterprises, alongside increased investment in climate-resilient agriculture to strengthen economic stability.
In its broader regional assessment, the ADB said the Middle East conflict has become a major source of uncertainty for developing Asia, with energy price volatility expected to increase production costs and inflation pressures across the region even if tensions stabilize in the near term.
