The Asian Development Bank has maintained Pakistan’s economic growth forecast at 3.7 percent for fiscal year 2027, while warning that an escalation of the Iran War could disrupt labor markets in Gulf economies and potentially affect workers’ remittances.
The Manila based lender also projected inflation at 8.3 percent for FY2027, citing rising energy and input costs and wider risks from the Middle East War. The growth projection remains below the government’s 4 percent budget target, while the inflation forecast is above the official estimate of 7 percent.
The ADB retained its July growth forecast after previously projecting 4.5 percent growth in its April 2026 outlook.
The bank said average inflation could rise to 8.3 percent in FY2027, exceeding the State Bank of Pakistan’s medium term target range of 5 percent to 7 percent. Higher energy, logistics and agricultural input costs are expected to keep pressure on domestic prices.
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. It 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.
The bank said renewed austerity measures by the government could also weaken domestic demand and economic activity if spending cuts are more extensive than expected. It emphasized that consistent implementation of economic reforms would remain important for fiscal and external stability and investor confidence.
Pakistan’s economy grew 3.7 percent in FY2026, up from 3.2 percent in FY2025, with the expansion supported by services, manufacturing, agriculture and private investment. Agriculture grew 2.9 percent despite flood related losses to major crops, while private investment increased 8.6 percent amid lower borrowing costs and improved business confidence.
The ADB said 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, while gross international reserves increased and strengthened the country’s external position. Pakistan also regained access to international capital markets through Eurobond and Panda bond issuances in April and May 2026.
ADB Country Director for Pakistan Emma Fan said the economy had made progress in strengthening macroeconomic stability over the past two years. She said maintaining the pace of reforms would be important for attracting private investment, improving resilience to external shocks and achieving stronger and more inclusive growth.
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