The Asian Development Bank (ADB) has revised Pakistan's inflation outlook upward, projecting 7.2% for FY2026 and 8.3% for FY2027, driven by surging food and fuel costs. The growth forecast for the current financial year 2026-27 is set at 3.7%, reflecting higher energy costs and pressure on remittances.
Growth Projections and Key Drivers
According to the ADB's Asian Development Outlook (ADO) July 2026, Pakistan's economy grew by 3.7% in FY2026 (ended 30 June 2026), supported by strong industry and services alongside modest agricultural gains. However, the growth forecast for FY2027 is revised down to 3.7% due to higher energy costs and pressure on remittances.
The ADB noted that preliminary data show a robust performance in industry and services, but the outlook is tempered by external headwinds. The report states: "Preliminary data show Pakistan’s economy growing by 3.7% in FY2026... However, the growth forecast is revised down to 3.7% for FY2027 due to higher energy costs and pressure on remittances."
Inflation Forecast and Regional Context
Inflation in Pakistan is now forecast at 7.2% for FY2026, up from previous estimates, and 8.3% for FY2027. The ADB attributes this to rising food and fuel costs, exacerbated by adverse spillover from the Middle East conflict. The report warns: "The forecast for FY2027 is also revised up to 8.3%, given persistent adverse spillover from the Middle East conflict."
For developing Asia and the Pacific, the ADB lowered the 2026 growth forecast to 4.9%, down from 5.5% in 2025, a reduction of 0.2 percentage points from April projections. The 2027 growth forecast is maintained at 5.1%, reflecting recovering activity as pressures ease. Regional inflation is forecast at 4.3% in 2026, compared to 3% in 2025, an upward revision of 0.7 percentage points from April. The inflation forecast for 2027 remains at 3.4%.
Impact of Middle East Conflict and Energy Markets
The ADB emphasizes that prolonged disruptions to energy markets caused by the Middle East conflict have weighed more heavily on the region's prospects than anticipated. Despite a framework agreement signed in June, disruptions to global energy markets are expected to unwind only gradually. Impacts extend beyond energy to fertilizers, other commodity prices, and supply chains, keeping inflationary pressures persistent.
ADB Chief Economist Albert Park commented: "Durable implementation of the framework agreement would help normalize global energy markets, but the pace of adjustment is highly uncertain with significant downside risks. Economic growth in developing Asia and the Pacific remains resilient, but persistent headwinds caused by the conflict require a careful policy balance between supporting growth and containing inflation."
Risks and Subregional Outlook
The ADO July 2026 warns that renewed conflict escalation and prolonged geopolitical uncertainty remain key risks. These could further tighten energy markets, raise risk premia, and intensify inflationary and external pressures. Tighter global financial conditions, rising sovereign bond yields and borrowing costs, and widening fiscal deficits in several economies pose additional risks. Higher tariffs and trade policy uncertainty could also weigh on activity, while rising fertilizer prices threaten agricultural output and food security.
Growth projections for 2026 are lowered for most subregions, except developing East Asia. Forecasts for the People's Republic of China are unchanged at 4.6% for 2026 and 4.5% for 2027, supported by strong exports and infrastructure investment. India's growth forecast is revised down to 6.6% in 2026, as higher energy costs weigh on domestic demand, but maintained at 7.3% for 2027. Growth projections for Southeast Asia and the Pacific are also trimmed, reflecting weaker domestic demand and tourism, rising inflation, and higher import costs.
