The Asian Development Bank (ADB) has upgraded Pakistan’s economic growth outlook for 2025 and 2026, citing stronger-than-expected performance in the fourth quarter of FY2025, easing inflation, and a less severe impact from recent floods. In its latest report, Asian Development Outlook: Growth Steadies but Uncertainty Lingers, the bank revised its GDP estimate for FY2025 to 3%, up from the earlier forecast of 2.7%.
Pakistan’s economic performance exceeded expectations, with the government updating its GDP forecast to 3%, driven by a robust 5.7% growth in Q4 of 2025. Despite disruptions caused by flooding in June 2025, large-scale manufacturing continued to show strong momentum, providing optimism for FY2026. ADB also noted a significant decrease in inflation, which fell to 4.7% in the first four months of FY2026, compared to 8.7% during the same period last year.
Read more: ADB upgrades growth outlook for Pakistan in FY2025-2026
The improvement in inflation is partly attributed to stabilising food prices after the surge caused by flood-induced disruptions. The ADB highlighted that the regional growth outlook for South Asia, including Pakistan, had also been revised upward due to increased public investment and the less severe-than-expected impact of flooding.
While these short-term improvements are positive, ADB also warned of long-term structural risks for Pakistan, particularly in the face of economic water scarcity. Despite the encouraging growth projections, the bank underscored that significant challenges remain for the country’s economic sustainability.
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The bank’s regional outlook has also been revised, with growth for developing Asia now projected at 5.1% for 2025, an increase from the previous forecast of 4.8%. The outlook for 2026 has been lifted to 4.6%. However, ADB’s Chief Economist Albert Park cautioned that while trade agreements and steady growth are supporting the region’s performance, external risks, such as renewed trade tensions and financial market volatility, could affect the future outlook.