Economic Affairs & Development Desk | April 2026 | 5 min read
| ⚡ QUICK TAKEAWAYS
• ADB has upgraded Pakistan’s FY2026 GDP growth forecast from 3.0% to 3.5% — and FY2027 from 4.0% to 4.5%. • The upgrade reflects a faster-than-expected manufacturing rebound and less flood damage than initially feared. • Inflation is projected to rise to 6.4% in FY2026 and 6.5% in FY2027 due to higher energy prices from the Middle East war. • A prolonged conflict could cut growth by raising energy and fertiliser costs, reducing Gulf remittances and widening the trade deficit. • Large-scale manufacturing grew 4.8% in H1 FY26 — autos, cement and textiles led the recovery. |
The Asian Development Bank has raised its GDP growth forecast for Pakistan to 3.5 percent for FY2026 and 4.5 percent for FY2027, recognising faster-than-expected stabilisation and recovery in the economy. The upgrade comes with a clear warning, however: a prolonged Middle East conflict poses significant downside risk to growth through higher energy costs, weaker remittances and a widening current account deficit.
ADB PAKISTAN FORECAST — KEY NUMBERS
| 3.5%
GDP Growth FY2026 Upgraded from earlier 3.0% forecast |
4.5%
GDP Growth FY2027 Projected recovery trajectory |
6.4%
Inflation FY2026 Rising on energy prices — within 5–7% target |
Upgraded Growth Forecasts: Before and After
The ADB’s April 2026 Asian Development Outlook revises Pakistan’s growth numbers upward from earlier projections:
| Period | Previous Forecast | New Forecast | Key Drivers |
| FY2025 (Actual) | 3.1% | 3.1% | Baseline — manufacturing, services recovery begins |
| FY2026 (Forecast) | 3.0% | 3.5% | Upgraded — faster manufacturing rebound, less flood damage |
| FY2027 (Forecast) | 4.0% | 4.5% | Further upgraded — investment recovery, private sector led |
| WHY THE UPGRADE?
ADB cited two key factors behind the upward revision: a quicker-than-anticipated recovery in manufacturing — particularly in automobiles, cement and textiles — and much less crop damage from flooding than initially expected. Provisional Q1 FY2026 data confirmed both improvements. The successful privatisation of PIA was also noted as a positive signal for private investment. |
Sector-by-Sector Performance: What the Data Shows
| Sector / Indicator | Performance | Notes |
| Large-Scale Manufacturing | +4.8% | H1 FY26 — autos, cement, textiles recovering |
| Construction | +21.0% | Q1 FY26 — fiscal incentives + flood reconstruction |
| Services | +3.7% | Q1 FY26 — trade, transport, wholesale sector led |
| Workers Remittances | +11.3% | July–Jan FY26 — total Rs 23.2 billion |
| Merchandise Imports | +9.8% | H1 FY26 — autos, machinery, metals, chemicals |
| Merchandise Exports | -5.5% | H1 FY26 — rice exports fell ~$1bn due to floods |
| Current Account Deficit | -$1.2B | July–Jan FY26 — reversed prior year’s $564M surplus |
Construction’s 21% growth in Q1 FY26 stands out as the single strongest sector performance — driven by government fiscal incentives introduced in the FY26 budget and ongoing post-flood reconstruction efforts. Workers’ remittances rising 11.3 percent to $23.2 billion in the first seven months of FY26 also provided meaningful external support, though the ADB warns this could reverse if Gulf economies weaken due to the Middle East conflict.
The Middle East Risk: Four Ways the War Could Derail Growth
The ADB identified a prolonged Middle East conflict as the primary downside risk to Pakistan’s otherwise improving economic trajectory. The bank outlined four specific transmission channels through which sustained conflict could harm Pakistan’s economy:
- Higher energy and fertiliser costs — directly raising production expenses across agriculture and industry, suppressing output.
- Weaker agricultural and industrial output — particularly if energy price shocks combine with supply disruptions to reduce productivity.
- Declining Gulf remittances — if instability weakens Gulf economies, Pakistani workers abroad face reduced income and potential job losses, shrinking one of the economy’s most important external revenue streams.
- Widening current account deficit — oil and gas constitute a large share of Pakistan’s imports; rising global energy prices automatically inflate the import bill, while export disruptions could simultaneously weaken receipts.
| CURRENT ACCOUNT ALREADY DETERIORATING
The current account deficit reached $1.2 billion in the first seven months of FY26 — reversing a $564 million surplus in the same period a year earlier. The deficit of goods and services widened 28.9% to $20.5 billion, driven by a 9.8% rise in imports and a 5.5% fall in merchandise exports. This deterioration occurred before the worst of the energy price impact from the Middle East war. |
Inflation and Monetary Policy Outlook
Average inflation is projected to rise to 6.4 percent in FY2026 and 6.5 percent in FY2027 — driven primarily by higher oil prices and disrupted trade routes stemming from the Middle East conflict. Oil and gas constitute a large share of Pakistan’s imports, making the economy particularly sensitive to global energy price movements.
The State Bank of Pakistan is expected to ease monetary policy cautiously, maintaining stability within its medium-term inflation target range of 5 to 7 percent. The ADB warned that deploying overly loose macroeconomic policies to chase higher growth targets could revive balance-of-payments pressures and threaten the hard-earned macroeconomic stability Pakistan has recently achieved.
Key Takeaways
- ADB upgraded Pakistan’s GDP growth forecast to 3.5% for FY2026 (from 3.0%) and 4.5% for FY2027 (from 4.0%).
- The upgrade is driven by faster manufacturing recovery and lower-than-feared flood damage in Q1 FY26.
- Inflation is projected at 6.4% in FY2026 — rising but within SBP’s 5–7% target range.
- A prolonged Middle East conflict could raise energy costs, cut Gulf remittances and widen the trade deficit.
- Large-scale manufacturing grew 4.8% in H1 FY26 — construction grew 21% — led by autos, cement, textiles.
- Sustained structural reform remains critical — reform fatigue or policy slippage could reverse progress quickly.
DISCLAIMER: All forecasts and data are sourced from the ADB’s Asian Development Outlook April 2026 report. This content is intended for general informational purposes only.
