The Asian Development Bank expects Pakistan’s economy to grow 3.7% in FY2027, while inflation is projected to rise to 8.3% amid higher energy costs and external risks.
ISLAMABAD: Pakistan’s economic growth is projected at 3.7% in FY2027, with the Asian Development Bank (ADB) maintaining its latest forecast amid higher energy costs and continued external uncertainty.
The forecast is contained in the Asian Development Outlook (ADO) September 2026, released by the ADB on September 23. The bank’s latest data confirms a 3.7% growth forecast for Pakistan in FY2027, while inflation is projected at 8.3%.
Pakistan’s economic performance strengthened during FY2026, with GDP growth accelerating to 3.7% from 3.2% in FY2025.
The expansion was broad-based, supported by resilient services, a rebound in manufacturing, a recovery in agriculture and stronger private investment. However, the escalation of conflict in the Middle East affected economic activity towards the end of FY2026.
The ADB expects continued implementation of economic reforms, improved external buffers, renewed access to international capital markets and recent sovereign credit rating upgrades to support investor confidence and private investment during FY2027.
At the same time, elevated energy prices and external uncertainty, including the continuing effects of the Middle East conflict, are expected to limit a stronger acceleration in economic activity.
ADB Country Director for Pakistan Emma Fan said Pakistan had made progress in strengthening macroeconomic stability over the past two years.
She said sustained reforms had contributed to stronger growth, improved external buffers, restored market confidence and sovereign credit rating upgrades, while maintaining reform momentum would be important for attracting private investment and strengthening resilience to external shocks.
Manufacturing, services and investment support growth
According to the ADB, economic growth in FY2026 was supported primarily by expansion in manufacturing and services.
Agriculture grew by 2.9%, despite flood-related losses affecting major crops. Private investment increased by 8.6%, supported by lower borrowing costs and improved business confidence.
Fiscal consolidation also continued during FY2026, while an increase in gross international reserves strengthened Pakistan’s external resilience.
Pakistan received sovereign credit rating upgrades from S&P in July 2026 and Moody’s in August 2026, reflecting improvements in macroeconomic stability, stronger external buffers and continued reform implementation.
The country also regained access to international capital markets through Eurobond and Panda bond issuances in April and May 2026, respectively.
Inflation expected to rise to 8.3%
The ADB reported that inflation averaged 7.1% in FY2026, compared with 4.5% in FY2025, as higher food and global oil prices intensified inflationary pressures during the second half of the fiscal year.
Average inflation is projected to increase to 8.3% in FY2027, above the central bank’s medium-term target range of 5%–7%. The ADB’s latest Pakistan forecast attributes the increase to persistent pressure from energy, logistics and agricultural input costs.
Higher energy costs could feed through into transport, production and other domestic prices, putting additional pressure on household purchasing power.
The ADB’s latest regional outlook also identifies elevated energy prices and geopolitical uncertainty as important factors affecting inflation and growth across developing Asia.
Middle East conflict poses downside risks
The ADB said Pakistan’s economic outlook remains subject to significant downside risks.
A further escalation of the Middle East conflict could increase Pakistan’s energy import costs, intensify inflationary pressures and disrupt labour markets in Gulf economies, potentially affecting workers’ remittances.
The reintroduction of austerity measures by the Pakistani government could also weigh on domestic demand and economic activity, particularly if expenditure restraint proves more pronounced than anticipated.
Other risks identified by the ADB include tighter global financing conditions, shortfalls in tax revenue, weather-related agricultural shocks and delays in reforms affecting the energy sector and state-owned enterprises.
The bank stressed that consistent implementation of reforms would remain important for reinforcing fiscal and external stability, sustaining investor confidence and supporting stronger and more inclusive economic growth.
For FY2027, the ADB’s projection therefore points to continued economic expansion in Pakistan, but with growth facing pressure from elevated energy costs, inflation and external risks.