Key Takeaways
- The Asian Development Bank (ADB) has kept Pakistan's economic growth forecast at 3.7% for the fiscal year 2026-27.
- Inflation is projected to rise to 8.3%, the second highest in the region, due to rising costs and energy disruptions.
- The government may need to cut expenses if tax revenue falls short of targets, limiting growth-enhancing public investment.
The Asian Development Bank (ADB) has maintained Pakistan's economic growth forecast at 3.7% for the fiscal year 2026-27, according to its latest Asian Development Outlook. This projection is lower than the official target of 4% set by the government.
The ADB also projected an increase in inflation to 8.3% for the current fiscal year, the second highest in the region after Bangladesh. This is significantly higher than the official estimate of 7%.
The ADB cited several factors contributing to the economic outlook, including the ongoing conflict in the Middle East, which is expected to raise energy import costs and intensify inflation. Additionally, the bank warned of potential risks from tighter global financing conditions, shortfalls in tax revenue, and delays in energy-sector reforms.
Pakistan's economic growth is projected to remain subdued due to the rising cost of living, with household consumption expected to remain subdued. The ADB noted that the government may have to cut expenses if tax revenue falls short of targets, limiting the space for growth-enhancing public investment.
The ADB highlighted that the Federal Board of Revenue (FBR) missed its IMF-given tax target for the last fiscal year by a wide margin of Rs969 billion. For the current year, the government has set a target of Rs15.263 trillion, and its achievement is critical to providing Rs1 trillion in provincial grants to the federal government.
The ADB urged more transparency in fiscal matters, improved tax administration, and expenditure efficiency to reduce borrowing costs and create space for private credit. However, the report stated that household spending is likely to remain subdued due to compressed real incomes.
The ADB's latest forecast is based on the assumption that the government will continue to implement fiscal consolidation measures. However, the report noted that execution risks are material, and if revenue targets are missed, in-year expenditure cuts will be required, further limiting growth potential.
The ADB's forecast reflects a cautious outlook for Pakistan's economy, with the government facing significant challenges in achieving its growth targets. The bank's projections highlight the need for robust fiscal management and economic reforms to address the current economic challenges.
