According to the report, Pakistan’s average inflation is expected to rise to 8.3% in FY2027, exceeding the State Bank of Pakistan’s target range of 5% to 7%. Average inflation stood at 7.1% in FY2026 and 4.5% in FY2025.
The ADB said inflationary pressures increased during the second half of the year due to higher food prices and elevated global oil prices. Rising costs of energy, transportation and agricultural commodities could continue to put pressure on domestic prices.
The bank warned that an escalation in the Middle East conflict could increase Pakistan’s energy import costs, while disruptions in Gulf labour markets could affect remittances from Pakistani workers abroad. The reintroduction of austerity measures could also put pressure on domestic demand and economic activity.
Pakistan’s economy grew by 3.7% in FY2026, up from 3.2% in FY2025. The ADB expects GDP growth to remain at 3.7% in FY2027.
The report noted continued progress on economic reforms and improvements in external financial buffers. Renewed access to global capital markets and improved sovereign credit ratings are expected to support investor confidence and private investment.
The ADB said expansion in the manufacturing and services sectors supported growth in FY2026. Despite flood-related damage to major crops, the agriculture sector grew by 2.9%, while private investment increased by 8.6% amid lower interest rates and improved business confidence.
The report also highlighted continued progress in fiscal consolidation and an increase in overall foreign exchange reserves, strengthening external financial stability.
ADB Country Director Emma Fan said Pakistan had made progress in strengthening macroeconomic stability over the past two years, but stressed that maintaining the momentum of reforms would remain important for economic growth.