Stay the course

According to the Asian Development Outlook (ADO) April 2025 report, the annual flagship report of the Asian Development Bank (ADB), Pakistan’s economy is showing signs of stability and recovery with growth in FY2025 (ending June 30, 2026). However, this growth is not expected to be all that much, clocking in at just 2.5 per cent, the same growth rate the nation achieved in the current fiscal year. This is far below the South Asian average of 6.0 per cent. And while growth is expected to rise to 3.0 per cent in FY2026, these forecasts were made prior to the April 2 announcement of new tariffs by the US administration which have rocked global trade and battered markets across the globe, with fears of a global recession climbing. Pakistan was hit with a 29 per cent ‘reciprocal tariff’ and experts warn that they could lead to a 20-to-25 per cent decline in the country’s exports to the US, amounting to an annual loss of between $1.1 billion to $1.4 billion. Inflation is another key concern, with the ADB warning that “more restrictive immigration measures and more expansionary fiscal policy in the US than assumed in our baseline could stoke inflation”.

All this being said, the new tariffs by the US do not change everything and much of the advice given by the ADB report concerning Pakistan still remains relevant. In particular, the ADO report highlights that Pakistan’s outlook depends largely on the success of ongoing economic reform, which has progressed considerably under the IMF’s Extended Fund Facility

programme. Agricultural income became taxable across Pakistan after all provinces successfully passed the Agriculture Tax Bill, 2025 and the report also notes strong reform implementation in other areas including planned fiscal consolidation to reduce public debt, tight monetary policy to maintain low inflation and improvement of energy sector viability. The report argues that Pakistan will need to consolidate public finances by broadening the tax base and increasing social spending, mitigate the risks from state-owned enterprises and improve the business environment in order to further the reform agenda and achieve sustainable and inclusive growth.

As such, maintaining the current reform and stabilisation agenda, with the help of the IMF, remains crucial to the country’s future economic prospects. Staying on this path will require resisting the temptation to relax macroeconomic policies as signs of stability continue to grow. The ADO report warns that, aside from global risks to trade, commodity prices and exchange rate stability, any deviation, relaxation of or lapses in the current reform agenda constitute a major downside risk to Pakistan’s economy. Indeed, it is precisely these sorts of lapses and reversals that have been the downfall of the country’s previous attempts at turning its economy around, plunging the nation back into the balance-of-payments crises that it then needs to climb out of all over again. Sadly, while the tariff barrage from the US does not exactly change the imperative for Pakistan to maintain the current course, it makes it all the harder to do. It is also quite galling for countries in the Global South to have their solvency tied to implementing the neoliberal economic consensus while the US, the originator of this model, basically tears it all up without a care for the consequences. But, these are luxuries only those at the top of the pecking order can afford.