Islamabad (TDI): Pakistan’s economy is expected to expand by 3% in fiscal year 2025-26 (FY26), though inflation may climb to 6%, the Asian Development Bank (ADB) said in its Asian Development Outlook released on Tuesday.
The Manila-based lender credited the country’s gradual return to macroeconomic stability for the growth momentum, noting that increased investment, driven by continued policy reforms, underpinned the modest uptick in FY25, which ended on June 30.
“Pakistan’s growth prospects remain positive. However, the country continues to face structural challenges, compounded by recurring disasters such as the recent floods,” ADB Country Director for Pakistan Emma Fan said. “Consistent reforms and effective policy implementation are essential to build credibility, sustain momentum, and strengthen resilience.”
The report highlighted significant progress under the International Monetary Fund’s Extended Fund Facility, launched in October 2024, but cautioned that policy consistency and climate resilience are critical to sustaining recovery.
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According to the outlook, external buffers and improved investor confidence, partly supported by the recent US-Pakistan trade agreement, are expected to aid economic activity in FY26. Still, flood-related destruction to farmland and infrastructure poses risks that could weigh on output. Fiscal incentives announced for the construction sector in the FY26 budget are likely to cushion some of the negative impact.
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On inflation, the ADB warned that food supply disruptions caused by floods, along with higher gas tariffs, could push consumer prices up to 6% in FY26. The central bank, it added, is expected to move cautiously in relaxing monetary policy in order to keep inflation within its medium-term target band of 5%–7%.
Despite the generally positive outlook, the Bank underscored that downside risks remain elevated.
