Key Takeaways
- The Asian Development Bank maintains Pakistan’s growth forecast at 3.7% for FY2027.
- An escalation of the Iran War could disrupt labor markets in Gulf economies and affect remittances.
- Inflation is projected at 8.3% for FY2027, up from the official estimate of 7%.
The Asian Development Bank (ADB) has maintained Pakistan’s economic growth forecast at 3.7% for fiscal year 2027, according to a recent statement. However, the bank has warned that an escalation of the Iran War could disrupt labor markets in Gulf economies and potentially affect workers’ remittances to Pakistan.
Inflation is projected to rise to 8.3% for FY2027, up from the official estimate of 7%, due to rising energy and input costs and wider risks from the Middle East conflict. The ADB’s growth projection remains below the government’s 4% budget target.
Pakistan’s economy grew 3.7% in FY2026, up from 3.2% in FY2025, supported by services, manufacturing, agriculture, and private investment. Agriculture saw a 2.9% growth despite flood-related losses to major crops, while private investment increased 8.6% amid lower borrowing costs and improved business confidence.
The ADB noted that stronger external buffers, continued reforms, improved market access, and recent sovereign credit rating upgrades are expected to support investor confidence and private investment. However, elevated energy prices and external uncertainty could limit further acceleration in economic growth.
Fiscal consolidation continued during FY2026, with gross international reserves increasing and strengthening Pakistan’s external position. The country also regained access to international capital markets through Eurobond and Panda bond issuances in April and May 2026.
Emma Fan, ADB Country Director for Pakistan, stated that the economy had made progress in strengthening macroeconomic stability over the past two years. She emphasized the importance of maintaining the pace of reforms to attract private investment, improve resilience to external shocks, and achieve stronger and more inclusive growth.
The ADB warned that an escalation of the Middle East War could raise Pakistan’s energy import costs, increase inflation, and disrupt labor markets in Gulf economies, potentially affecting workers’ remittances. The bank also identified tighter global financing conditions, tax revenue shortfalls, weather-related agricultural shocks, and delays in energy sector and state-owned enterprise reforms as risks.
Renewed austerity measures by the government could also weaken domestic demand and economic activity if spending cuts are more extensive than expected. The bank emphasized that consistent implementation of economic reforms would remain important for fiscal and external stability and investor confidence.
