What happened
The Asian Development Bank on Friday raised Pakistan’s economic growth forecast for the current fiscal year to 3.5 per cent, up from the 3pc it projected in September 2025, citing a quicker-than-expected rebound in manufacturing and weaker flood damage to crops. Real GDP growth is then seen accelerating to 4.5pc in FY27, from 3.1pc in FY25, according to the Manila-based lender’s flagship Asian Development Outlook (ADO) April 2026.
The upgrade lands against a deteriorating external backdrop. Average inflation is now projected to rise to 6.4pc in FY26 and 6.5pc in FY27 as surging oil prices and disrupted trade routes tied to the Middle East conflict feed through, ADB Country Director for Pakistan Emma Fan told reporters.
What is driving the upgrade
Provisional first-quarter FY26 data show GDP growth of 3.7pc, led by livestock, large-scale manufacturing, construction, utilities, wholesale and retail trade, and transport and storage. Large-scale manufacturing output rebounded 4.8pc in the first half of FY26 (July–December) as automobiles, cement and textiles picked up on accommodative monetary policy, low inflation and renewed confidence. KhabarWire earlier reported that Pakistan’s economy grew 3.89 per cent in the second quarter of FY26 as industry rebounded.
Construction grew 21.0pc in Q1 FY26, supported by fiscal incentives in the FY26 budget and reconstruction after last year’s floods. The revival of privatisation, including the successful transfer of Pakistan International Airlines, is also expected to lift private investment, ADB said.
Workers’ remittances rose 11.3pc to $23.2bn in July–January FY26, partly cushioning the wider current account deficit, which reached $1.2bn in the first seven months of FY26 — reversing a $564m surplus a year earlier as imports of automobiles, machinery, metals and chemicals grew 9.8pc. Merchandise exports fell 5.5pc, mainly because flood-related crop losses cut rice exports by about $1bn.
What the ADB is warning about
The bank kept its tone cautious. Sustained reform is “critical to preserve the growth momentum and bolster fiscal and external buffers against global shocks,” Fan said. A prolonged Middle East conflict could “significantly weigh” on the outlook by raising energy and fertiliser costs, curbing Gulf remittances and widening the current account gap.
The central bank is expected to ease monetary policy cautiously to keep inflation inside its 5pc–7pc medium-term target range. KhabarWire earlier reported that the State Bank held its policy rate at 10.5 per cent in March as the Middle East war raised oil prices and inflation risks.
What is still uncertain
- The size and duration of the Middle East shock to Pakistan’s oil and gas import bill.
- Whether the construction surge holds once one-off FY26 budget incentives expire.
- The trajectory of remittances if Gulf economies weaken further.
