Pakistan’s economy is expected to grow by 3.5% in fiscal year 2026 and 4.5% in 2027, the Asian Development Bank (ADB) said on Friday, as stabilisation gains gather pace despite significant downside risks.

According to the Asian Development Outlook (ADO) April 2026, growth is projected to rise from 3.1% in FY2025, supported by a recovery in manufacturing and increased investment.

The ADB said Pakistan’s economy has stabilised and begun to show stronger momentum following a period of tight macroeconomic management and progress on key reforms.

“Pakistan’s economy has stabilised and begun to show stronger momentum, supported by progress in implementing key economic reforms amid a challenging global environment,” said Emma Fan.

“Growth is expected to continue in 2026 and 2027, but downside risks are significant. Sustained reform efforts are critical to preserve the growth momentum and bolster fiscal and external buffers against global shocks.”

The report warned that a prolonged Middle East conflict could weigh heavily on the outlook by increasing energy and fertiliser costs, weakening industrial and agricultural output, reducing remittances and widening the current account deficit.

Inflation is projected to rise to 6.4% in FY2026 and 6.5% in FY2027 due to higher oil prices and disrupted trade routes.

The central bank is expected to ease monetary policy cautiously to keep inflation within its medium-term target range of 5%-7%.

The ADB said growth in FY2026 would be supported by a rebound in private-sector investment, aided by reform progress and a stable foreign exchange market, alongside fiscal incentives and post-flood reconstruction.

Despite recent stabilisation, the report cautioned that Pakistan’s economic outlook remains vulnerable to global uncertainty, underscoring the need for prudent policies and sustained structural reforms.