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The Asian Development Bank (ADB) has raised Pakistan’s economic growth forecast for the fiscal year 2024–2025 (FY25) to 2.7%, revising it upward from the earlier projection of 2.5% made in April. The adjustment comes as a result of stronger-than-expected growth in the country’s industrial and services sectors, even as agriculture underperforms.
The updated forecast was released in ADB’s latest Asian Development Outlook, published on Wednesday, which provides semiannual insights into economic trends and projections across Asia and the Pacific.
Economic Stabilization Drives Optimism
ADB’s revised forecast reflects growing macroeconomic stability, helped by improved governance, resumption of fiscal discipline, and continuity in economic reforms supported by the International Monetary Fund (IMF) Stand-by Arrangement.
According to the ADB:
“Pakistan’s recovery is strengthening due to improving industry and services. However, challenges in agriculture are expected to weigh on overall performance.”
This upward revision is seen as a positive signal for investor confidence, especially as Pakistan moves toward long-term structural reforms and prepares for a potential new IMF loan program.
Sectoral Breakdown: Industry and Services Lead Recovery
The ADB report emphasizes that despite ongoing constraints in public finances and agriculture, industry and services have shown resilience:
Industrial Sector:
- Benefited from eased import restrictions, stabilizing power supply, and improved input availability.
- Key subsectors such as construction, textiles, and manufacturing have shown modest recovery from FY24 lows.
Services Sector:
- Driven by retail, banking, and transport, the services sector has outperformed initial expectations.
- Increased digital adoption, fintech growth, and a rebound in tourism have contributed to this recovery.
In contrast, the agricultural sector is expected to post lower output due to water shortages and climatic disruptions, particularly in Sindh and southern Punjab.
Inflation Outlook Revised Downward for FY25
Alongside GDP growth, the ADB has also lowered its inflation forecast for FY25, attributing the revision to a faster-than-anticipated decline in food and non-food prices during the first eleven months of the fiscal year.
“The return of exchange rate stability, better supply chain management, and price control mechanisms have helped ease inflationary pressures,” the report said.
Key factors driving inflation relief include:
- Reduced global oil prices
- Stable rupee-dollar parity
- Declining food commodity prices (wheat, sugar, vegetables)
This is expected to provide some relief to household budgets and contribute to demand-side recovery in FY25.
Outlook for FY26 Remains Unchanged at 3.0%
Despite the improved short-term forecast, ADB has maintained its FY26 growth projection at 3.0%, citing cautious optimism.
This growth, while moderate, is expected to be supported by:
- Macroeconomic reforms
- Gradual recovery in consumer and investor confidence
- Stabilized foreign reserves and ongoing fiscal consolidation
- Better agricultural productivity, assuming favorable weather
However, the bank also reiterated that long-term growth hinges on structural reforms, including in taxation, SOE (state-owned enterprise) management, digital transformation, and export diversification.
Regional Context: South Asia’s Forecast Slightly Downgraded
While Pakistan received a minor upgrade, the ADB trimmed the South Asia regional GDP forecast for 2025 to 5.9%, down from 6.0%. This is due to growth moderation in India and ongoing political and economic uncertainty in countries like Sri Lanka and Bangladesh.
Pakistan Secures $12.4 Billion in Foreign Loans in FY2025
The ADB noted that South Asia remains vulnerable to:
- Escalating geopolitical tensions
- Global trade disruptions
- Energy price volatility
- Climate change and natural disaster risks
Despite these risks, the region is still expected to outperform many global peers in terms of growth.
Risks and Challenges: A Delicate Recovery Path Ahead
Although the upward revision for Pakistan is encouraging, ADB cautioned against complacency, warning of several downside risks:
- Resurgence of political instability
- Delays in IMF negotiations or unmet reform conditions
- Further climate shocks or poor crop yields
- Weakening global demand for Pakistan’s exports
- Energy supply disruptions due to fuel shortages or global price hikes
Therefore, policy continuity, reform implementation, and institutional transparency will remain crucial to sustaining the momentum.
Conclusion: A Fragile but Hopeful Economic Outlook
The ADB’s upward revision of Pakistan’s FY25 GDP growth forecast to 2.7% is a positive indicator that economic recovery, though slow, is beginning to take hold. Stronger performance in key sectors like industry and services has been enough to offset some of the concerns from a weak agriculture season.
Furthermore, declining inflation gives additional breathing space to households and businesses, potentially paving the way for interest rate stabilization in the coming months.
While risks remain significant, especially from external shocks and internal policy slippages, the path to recovery appears clearer than it did a few months ago. With proper policy execution, Pakistan could turn this moment into the beginning of a more sustainable growth cycle in the years ahead.
