The Asian Development Bank has cut its growth forecast for Pakistan’s economy in FY2026-27 to 3.7 percent, down from its April projection of 4.5 percent, citing the outsized impact of the US-Iran conflict on regional energy markets and Pakistan’s import costs (Dawn; Business Recorder; Express Tribune).
The ADB’s July 2026 Asian Development Outlook noted that “prolonged disruptions to energy markets caused by the Middle East conflict have weighed more heavily on the region’s prospects than anticipated.” Pakistan, which depends on LNG imports for a significant share of its gas supply and on oil imports for petrol and diesel, faces a direct cost pass-through from elevated international energy prices — as evidenced by the record Rs310.71/litre petrol price effective July 11 and the simultaneous surge in RLNG import costs.
Pakistan’s headline inflation reached 11.7 percent in May 2026, well above the State Bank’s 5-7 percent target range and the highest level since June 2024. The ADB’s revised outlook for the region raises developing Asia’s inflation forecast to 4.3 percent for 2026, up from 3 percent in 2025.
Pressure points
The growth downgrade reflects three simultaneous pressures. First, higher energy import costs directly increase Pakistan’s current account deficit, reducing the space for productive investment and consumption. Second, higher domestic fuel prices — driven by both elevated international prices and the government’s record Rs80/litre petroleum levy — compress household purchasing power. Third, monetary policy tightening (the SBP raised its policy rate to 11.5 percent in April in response to inflation) increases the cost of credit for businesses and slows investment.
The ADB’s FY28 forecast of 5.1 percent growth assumes these pressures ease as the energy market stabilises — which is contingent on a US-Iran diplomatic resolution that currently appears further away than it did in June. For Pakistan, each week of continued US-Iran hostilities translates directly into fiscal stress through the energy import bill and petrol price mechanism.
Pakistan’s FY26 actual growth came in at 3.7 percent, meaning the ADB’s FY27 forecast represents flat growth rather than the recovery trajectory that had been projected before the ceasefire collapsed. The IMF’s own projections for Pakistan, last formally updated in May, have not yet been revised for the post-ceasefire-collapse scenario.
