ISLAMABAD: The Asian Development Bank (ADB) has projected Pakistan’s GDP growth at 3 percent for FY2026, against government’s official target of 4.2 percent, and warned recent floods, which damaged infrastructure and farmland, could slow growth. Inflation is forecast at 5.8 percent for FY2026.
According to Asian Development Outlook (ADO) released on Tuesday, growth forecast for FY2026 remains unchanged. Economic activity is expected to benefit from reduced risks linked to debt and balance of payments — evident in Pakistan’s upgraded sovereign credit ratings by international agencies — and from renewed business confidence after US-Pakistan trade agreement. However, destruction of infrastructure and farmland during the floods could drag down growth.
Recovery and rehabilitation efforts, supported by fiscal incentives for construction in FY2026 budget, may partly counter these negative effects. Investment is also expected to strengthen domestic demand, provided structural reforms and sound macroeconomic policies continue.
ADB highlighted several downside risks to Pakistan’s economic outlook:
Policy slippage and weak reform implementation; Revenue and fiscal consolidation failures; climate change and extreme weather events, particularly floods, which can damage agriculture, push up food inflation and hurt household incomes; global geopolitical and policy uncertainties, which could affect inflation, external stability and investor confidence.
On the upside, faster reforms and a more favourable global environment could lift growth above current expectations and strengthen resilience. Investment is expected to increase as business confidence improves, interest rates fall and fiscal consolidation lowers government borrowing needs, freeing up more funds for private investment.
Reforms under National Tariff Policy 2025–2030 and improved liquidity support for exporters via a digital tax refund system will boost competitiveness and encourage private investment. Workers’ remittances are projected to rise, supported by external stability, a steady exchange rate and the need to aid flood-affected families. These inflows may cushion the decline in private consumption caused by lower farm incomes. The government aims to sustain fiscal consolidation by raising revenue and controlling expenditure. The FY2026 budget targets a primary surplus of 2.4pc of GDP and overall deficit of 3.9pc, with gradual reduction over medium term. Tax revenue is projected to reach 13.2pc of GDP in FY2026, supported by tax reforms such as restricting non-filers from making major transactions (like purchasing assets), compliance risk management in large taxpayers’ offices, a uniform 18pc Sales Tax on goods sold online, on solar panel imports, and on all vehicles.
