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Pakistan’s improved macroeconomic conditions have boosted growth in fiscal year 2025, supported by investment inflows and policy reforms, the Asian Development Bank (ADB) said in its latest report.
According to the Asian Development Outlook (ADO) September 2025, Pakistan’s real GDP growth is projected at 3% in fiscal year 2026 as reforms continue to stabilize the economy and address structural weaknesses. The report highlighted progress under the International Monetary Fund’s (IMF) Extended Fund Facility, launched in October 2024, as a key driver of stability.
“Policy consistency and climate resilience remain vital to sustaining growth momentum, but downside risks remain high,” the ADB report warned.
ADB Country Director for Pakistan Emma Fan added that while growth prospects are positive, recurring natural disasters like the recent floods and ongoing structural challenges underline the importance of consistent reforms to reinforce credibility and resilience.
Economic activity in FY2026 is expected to strengthen further, supported by improved external buffers and renewed investor confidence after the US-Pakistan trade agreement. However, the report cautioned that flood damage to infrastructure and farmland may weigh on growth, though fiscal incentives for the construction sector announced in the FY2026 budget are expected to partially offset the impact.
Average inflation is forecast to rise to 6% in FY2026 due to flood-related supply disruptions and higher gas tariffs. The State Bank of Pakistan is likely to take a cautious approach to monetary easing to keep inflation within its 5%–7% target range.
Investment and Export Competitiveness to Strengthen in FY2026
The report further noted that investment is expected to rise, driven by lower interest rates, fiscal consolidation, and tariff reforms under the updated National Tariff Policy 2025–2030. Liquidity support for exporters through a digitalized income tax refund system will also enhance export competitiveness.
Workers’ remittances are projected to remain strong, supported by external stability and the need for families to recover from flood losses. However, lower agricultural output could weigh on private consumption.
The FY2026 budget targets a primary surplus of 2.4% of GDP and an overall deficit of 3.9%, with tax revenues expected to reach 13.2% of GDP through better administration and policy reforms.
On the external front, ADB said Pakistan’s balance is expected to remain stable over the medium term. Imports will likely rise due to flood-driven food needs and higher raw material demand, widening the trade deficit. But a more functional foreign exchange market with a flexible exchange rate is projected to support remittances and keep the current account nearly balanced in FY2026.
Gross international reserves are forecast to reach $17.7 billion by June 2026, providing 2.8 months of import cover, supported by multilateral and bilateral inflows, flood relief, and central bank forex purchases.
