The Asian Development Bank (ADB) has cautioned that Pakistan’s economy faces significant risks that may adversely affect Pakistan’s growth and macroeconomic stability.
According to the Asian Development Outlook (ADO) September 2025 report, policy slippages, delays in reforms, and climate-related shocks remain the most pressing domestic threats. Weak policy implementation could undermine investor confidence, raise borrowing costs, and worsen external financing challenges. At the same time, Pakistan’s vulnerability to floods and other natural disasters threatens agriculture, infrastructure, and household incomes.
ADB noted that while the country achieved an uptick in growth in fiscal year 2025 due to increased investment and reforms, the path forward remains fragile. Real GDP growth is projected at 3.0% for FY2026, supported by improved external buffers and better business confidence. However, the damage from recent floods may continue to weigh heavily on key sectors such as agriculture and manufacturing.
The report highlighted that global uncertainties and geopolitical tensions could further disrupt inflation trends, external stability, and trade flows. These developments may also adversely affect Pakistan’s growth if supply chains remain strained and inflationary pressures rise.
On the policy front, the FY2026 budget aims to strengthen fiscal consolidation, with tax revenue expected to reach 13.2% of GDP. The government also introduced climate-focused measures, including carbon taxes and levies on conventional vehicles, to build resilience against environmental shocks. Subsidy cuts, privatization, and efforts to boost provincial surpluses are expected to create fiscal space for development spending.
Inflation is forecast to rise to 6.0% in FY2026 due to higher food prices and energy tariffs. Export performance is likely to remain under pressure from flood-related disruptions in rice and cotton production. However, the recent US-Pakistan trade agreement may help stabilize investment and trade inflows.
ADB stressed that faster reforms, a stable exchange rate, and improved resilience could strengthen economic recovery. But without consistent policy execution, the risks identified could still adversely affect Pakistan’s growth in the medium term.
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