Pakistan’s economic recovery hinges on sustained reforms, disaster resilience: ADB

ISLAMABAD: Pakistan’s economy is showing signs of recovery with improved macroeconomic conditions and rising investment, according to a new report released today by the Asian Development Bank (ADB).

However, the ADB cautioned that the country’s continued growth will depend heavily on the government’s commitment to structural reforms and its ability to build resilience against natural disasters.

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In its latest Asian Development Outlook (ADO) September 2025, ADB projected Pakistan’s real GDP growth at 3 per cent for fiscal year 2026, citing stronger macroeconomic fundamentals and ongoing reform efforts under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) program, which began in October 2024.

“Pakistan’s growth prospects remain positive,” said ADB Country Director for Pakistan, Emma Fan. “However, the country continues to face structural challenges, compounded by recurring disasters such as the recent floods. In this context, consistent reforms and policy implementation are essential for reinforcing policy credibility, sustaining economic momentum, and enhancing the country’s resilience.”

The report also noted that the country’s economic outlook is buoyed by improved external buffers and increased investor confidence, particularly after the recent US-Pakistan trade agreement. However, the damage from severe floods, disrupting infrastructure and agriculture, poses a downside risk to growth projections.

To counteract these challenges, the government has introduced fiscal incentives for the construction sector in the FY2026 budget, aimed at accelerating recovery and supporting job creation. These efforts are expected to partially offset the economic losses inflicted by the floods.

Inflation, however, remains a concern. ADB forecasts an average inflation rate of 6 per cent in FY2026, driven by supply chain disruptions from flood damage and rising gas tariffs. The central bank is expected to maintain a cautious stance on monetary policy, balancing inflation control with support for growth.

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ADB said that deepening economic reform, ensuring policy consistency, and investing in climate and disaster resilience will be essential to maintaining long-term stability. The bank also reiterated its support for Pakistan’s development goals, working with stakeholders to build sustainable infrastructure and promote inclusive growth.