ADB cuts Pakistan growth forecast to 3.7pc on higher energy costs

ISLAMABAD: The Asian Development Bank (ADB) on Thursday cut its forecast for Pakistan’s economic growth to 3.7 per cent, citing higher energy costs and anticipated pressure on foreign remittances from Pakistanis abroad.

In its Asian Development Outlook (ADO) July 2026, the Manila-based lender, however, lowered its growth forecast for developing Asia and the Pacific to 4.9pc for 2026 from 5.5pc in 2025, marking a 0.2-percentage-point reduction from its April projections.

“Preliminary data show Pakistan’s economy growing by 3.7pc in FY2026 (ended 30 June 2026), supported by strong industry and services alongside modest agricultural gains. However, the growth forecast is revised down to 3.7pc for FY2027 due to higher energy costs and pressure on remittances”, said the Asian Development Outlook July 2026.

ADB had earlier projected a 4.5pc growth rate for the current fiscal year in its April 2026 forecast.

It also revised upward its inflation forecast for both FY2026 and the current fiscal year compared to its previous estimates made in April 2026.

“Pakistan’s inflation forecast is revised up to 7.2pc in FY2026on rising food and fuel costs. The forecast for FY2027 is also revised up to 8.3pc, given persistent adverse spillover from the Middle East conflict.”

In April, the ADB had estimated 6.4pc inflation in FY2026 and 7.2pc for FY2027.

Meanwhile, the government has set the GDP growth target of 4pc and inflation at 8.2pc for the current year. The IMF anticipates 3.5pc growth for the current year.

Pakistan is not the only nation in the region to face higher inflation and lower growth this year as the ADB lowered its growth forecast for developing Asia and the Pacific to 4.9pc for 2026 from 5.5pc in 2025, marking a 0.2-percentage-point reduction from its April projections.

“For 2027, most sub-regional growth projections are unchanged, reflecting expectations of a gradual recovery. Downward revisions are seen in the Caucasus and Central and West Asia as well as South Asia, driven by lower forecasts for Armenia, Bangladesh, Nepal, Pakistan, Sri Lanka, and Turkiye partly because of the continued impact of higher energy prices”, the ADB noted.

With price pressures intensifying in recent months, headline inflation ran above target in 10 of 17 inflation-targeting economies in March–May. Inflation breached target ranges in early 2026 in Armenia, Georgia, Mongolia, Nepal, Pakistan, the Philippines, and Viet Nam, and remained above target, the ADB said. In response, monetary policy decisions have shifted toward rate holds and selective rate hikes, with central banks calibrating the pace of tightening to contain inflation while limiting drag on growth.

In April–June, policy rates were raised in Indonesia, Pakistan, and Sri Lanka by 100 basis points; in the Philippines by 50 points; and in Georgia by 25 points. Some central banks used foreign exchange intervention or regulatory measures to stabilise currencies. Bucking the trend, the central bank in Kazakhstan cut rates by 100 basis points in June as annual and monthly inflation eased with lower price increases for food and services.

Prolonged disruptions to energy markets caused by the Middle East conflict have weighed more heavily on the region’s prospects than anticipated, according to the ADB’s latest economic outlook released on Thursday. The lender maintained its 2027 growth forecast at 5.1pc, reflecting an expected recovery in economic activity as these pressures ease.

The ADB’s outlook expects disruptions to global energy markets to ease only gradually despite a framework agreement signed in June.

With the impact extending beyond energy to fertilisers, other commodity prices and supply chains, inflationary pressures are likely to persist.

Regional inflation is now forecast at 4.3pc this year, up from 3pc in 2025 and 0.7 percentage points higher than projected in April. The inflation forecast for 2027 remains unchanged at 3.4pc.

“Durable implementation of the framework agreement would help normalise global energy markets, but the pace of adjustment is highly uncertain, with significant downside risks,” ADB Chief Economist Albert Park said.

“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,” he added.

The ADB warned that renewed conflict escalation and prolonged geopolitical uncertainty remain key risks to the region’s outlook. These could further tighten energy markets, raise risk premia, and intensify inflationary and external pressures.

It further warned that tighter global financial conditions posed additional risks, with sovereign bond yields and borrowing costs rising and fiscal deficits projected to widen in several economies.

It said higher tariffs and elevated trade policy uncertainty could also weigh on economic activity, while rising fertiliser prices continued to threaten agricultural output and food security.

Growth projections for 2026 were lowered for most subregions, except developing East Asia. Forecasts for the People’s Republic of China remained unchanged at 4.6pc for 2026 and 4.5pc for 2027, supported by strong exports and infrastructure investment.

India’s growth forecast was revised down to 6.6pc this year as higher energy costs weigh on domestic demand, while the 2027 forecast was maintained at 7.3pc.

Growth projections for Southeast Asia and the Pacific were also trimmed, reflecting weaker domestic demand and tourism, rising inflation and higher import costs. ...