The Asian Development Bank (ADB) has cut Pakistan’s economic growth forecast for the current fiscal year to 2.5%, marking the slowest growth rate in South Asia, even lower than crisis-stricken Afghanistan. This downward revision comes just three months after the ADB had raised its forecast to 3%.
In its latest Asian Development Outlook, the ADB warns that any deviation from fiscal consolidation or stabilisation reforms could undermine the fragile recovery, especially as the country navigates economic headwinds and political uncertainty.
Key Highlights:
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Growth Forecast:
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FY2025: 2.5%
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FY2026: 3%, backed by private-sector reforms
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Inflation Projection:
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FY2025: 6% (second-highest in South Asia after Bangladesh’s 10.2%)
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FY2026: 5.8%
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Current Account & Reserves:
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Expected reserves: $13 billion (2.9 months of import cover by June 2025)
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Current account expected to remain contained despite a likely rise in imports
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Risks and Warnings:
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Political Instability: Rising tensions could erode business confidence and investment.
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Policy Reversal: Loosening macroeconomic policies could revive balance-of-payment pressures.
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Debt & Fiscal Pressure: Weak revenue and high spending could increase debt, raise borrowing costs, and destabilise the rupee.
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Energy Reforms: Rising gas prices could push inflation higher in the coming months.
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Climate Risks: A drought or poor rainfall could impact agriculture and food security.
Regional Context:
While South Asia’s growth is slowing, Pakistan still lags due to structural challenges and macro vulnerabilities. India’s temporary public investment delays and Sri Lanka’s fragile recovery also weigh on the region.
Reform Path:
The ADB praised Pakistan’s progress under the IMF Extended Fund Facility launched in October 2024 but emphasized that consistent implementation of structural reforms — particularly in the energy sector and state-owned enterprises — is vital for long-term resilience.
Outlook:
Though the recovery remains slow, lower inflation, stable remittances, and cautious monetary easing may support private consumption and moderate growth. However, sustaining this recovery hinges on fiscal discipline and stable governance.
