Asian Development Bank cuts FY2027 growth forecast, warns of higher inflation from energy costs
ISLAMABAD: The Asian Development Bank (ADB) on Thursday said Pakistan’s economy grew 3.7% in fiscal year 2025-26 (FY2026), driven by strong expansion in the industrial and services sectors and modest growth in agriculture, while lowering its growth forecast for the current fiscal year due to rising energy costs and external uncertainties.
In its Asian Development Outlook (ADO) July 2026, the Manila-based lender said economic activity in FY2026, which ended on June 30, was supported by broad-based growth across key sectors of the economy.
However, the ADB revised its FY2027 GDP growth forecast for Pakistan down to 3.7%, warning that higher energy prices and increasing pressure on workers’ remittances could weigh on economic activity during the current fiscal year.
ADB Raises Pakistan Inflation Forecast
The ADB Pakistan economy FY2026 report also revised upward its inflation projections, forecasting average inflation at 7.2% in FY2026, citing rising food and fuel prices.
For FY2027, the bank expects inflation to accelerate further to 8.3%, reflecting the continued impact of the conflict in the Middle East on global commodity and energy markets.
According to the report, elevated energy prices and persistent external uncertainties are expected to keep inflationary pressures high, posing challenges to Pakistan’s economic recovery.
Regional Growth Outlook Weakens
The ADB also lowered its outlook for developing Asia and the Pacific, forecasting regional economic growth of 4.9% in 2026, down from 5.5% in 2025 and 0.2 percentage points lower than its April projection.
The lender attributed the downgrade to prolonged disruptions in global energy markets caused by the Middle East conflict, which have had a greater-than-expected impact on the region’s economic prospects.
Despite the weaker outlook for 2026, the ADB maintained its 2027 regional growth forecast at 5.1%, expecting economic activity to recover gradually as energy market disruptions ease.
Energy Costs to Keep Inflation Elevated
The ADB said disruptions in global energy markets are expected to unwind only gradually despite a framework agreement reached in June.
It noted that the impact extends beyond energy prices to fertilisers, other commodities and global supply chains, contributing to persistent inflationary pressures across the region.
As a result, regional inflation is now projected at 4.3% in 2026, compared with 3.0% in 2025, representing an upward revision of 0.7 percentage points from the bank’s April forecast. The inflation outlook for 2027 remains unchanged at 3.4%.
The ADB Pakistan economy FY2026 assessment highlights that while Pakistan maintained economic growth during the last fiscal year, higher inflation, elevated energy prices and external risks are likely to present challenges to the country’s economic outlook in FY2027.