ADB keeps Pakistan's growth outlook unchanged at 3.7pc for current fiscal year

Lead

The Asian Development Bank (ADB) released its Asian Development Outlook (ADO) July 2026 on Thursday, keeping Pakistan's economic growth forecast unchanged at 3.7 per cent for the current fiscal year. The bank also projected inflation at 8.3 per cent for the fiscal year, a figure slightly higher than the government's estimate, as reported by Dawn.

Coverage comparison

Dawn, a Pakistani English-language daily, reported the story with a neutral framing, focusing on the ADB's growth and inflation forecasts. One of its articles noted that the ADB "cut its forecast" for Pakistan's growth to 3.7 per cent, while another said the bank "left its forecast unchanged" at the same figure. Both reports cited similar reasons: higher energy costs and pressure on remittances from Pakistanis abroad, as well as the spillover from the Middle East conflict.

Key claims

Pakistan's growth and inflation outlook

The ADB's outlook for Pakistan indicates a growth forecast of 3.7 per cent for both FY2026 and FY2027. According to the bank, preliminary data show Pakistan's economy growing by 3.7 per cent in FY2026 (ended 30 June 2026), supported by strong industry and services alongside modest agricultural gains. However, the forecast is revised down to 3.7 per cent for FY2027 due to higher energy costs and pressure on remittances. The ADB had earlier projected a 4.5 per cent growth rate for the current fiscal year in its April 2026 forecast.

Inflation is expected to rise, with the bank revising its forecast upwards for both FY2026 and FY2027 compared to its April estimates. The consumer price index is now projected at 7.2 per cent in FY2026, up from 6.4 per cent in the April forecast, and at 8.3 per cent for FY2027, up from 7.2 per cent, as reported by Dawn. The report attributes the upward revision to rising food and fuel costs and persistent adverse spillover from the Middle East conflict.

In contrast, the government has set a GDP growth target of 4 per cent and inflation at 8.2 per cent for the current year, while the IMF anticipates 3.5 per cent growth, according to the same report.

Regional outlook

The ADB lowered its growth forecast for developing Asia and the Pacific to 4.9 per cent for 2026 from 5.5 per cent in 2025, marking a 0.2-percentage-point reduction from its April projections. The lender maintained its 2027 growth forecast at 5.1 per cent, reflecting an expected recovery in economic activity as these pressures ease, as reported by Dawn.

Regional inflation is now forecast at 4.3 per cent this year, up from 3 per cent in 2025 and 0.7 percentage points higher than projected in April. The inflation forecast for 2027 remains unchanged at 3.4 per cent.

The ADB attributed the downward revisions to prolonged disruptions to energy markets caused by the Middle East conflict, which have weighed more heavily on the region's prospects than anticipated. The bank expects disruptions to global energy markets to ease only gradually despite a framework agreement signed in June. The impact extends beyond energy to fertilisers, other commodity prices, and supply chains, leading to persistent inflationary pressures.

Risks and policy recommendations

The ADB warned that renewed conflict escalation and prolonged geopolitical uncertainty remain key risks to the region's outlook. These could further tighten energy markets, raise risk premia, and intensify inflationary and external pressures. Tighter global financial conditions also pose additional risks, with sovereign bond yields and borrowing costs rising and fiscal deficits projected to widen in several economies. Higher tariffs and elevated trade policy uncertainty could also weigh on economic activity, while rising fertiliser prices continue to threaten agricultural output and food security.

ADB Chief Economist Albert Park was quoted as saying, "Durable implementation of the framework agreement would help normalise global energy markets, but the pace of adjustment is highly uncertain, with significant downside risks." He added, "Economic growth in developing Asia and the Pacific remains resilient, but persistent headwinds caused by the conflict require a careful policy balance between supporting growth and containing inflation."

Sub-regional variations

Growth projections for 2026 were lowered for most subregions, except developing East Asia. The report noted that forecasts for the People's Republic of China remained unchanged at 4.6 per cent for 2026 and 4.5 per cent for 2027, supported by strong exports and infrastructure investment. India's growth forecast was revised down to 6.6 per cent this year as higher energy costs weigh on domestic demand, while the 2027 forecast was maintained at 7.3 per cent. Growth projections for Southeast Asia and the Pacific were also trimmed, reflecting weaker domestic demand and tourism, rising inflation, and higher import costs.