ADB projects Pakistan's economy will grow only 2.5% amid risks

Pakistan is facing several risks to its economic recovery as outlined by the Asian Development Bank (ADB) in its annual flagship report, which was published on April 10, 2025. The ADB projects the country’s economic growth to be only 2.5% for the current fiscal year. The report emphasizes the need for consistent policy implementation to ensure resilience and inclusivity in economic growth. Political tensions, coupled with challenges related to food security from droughts and low rainfall, pose further threats to the economic landscape. Overall growth in the region is projected at 6% in 2025 and 6.2% in 2026, suggesting that Pakistan lags behind its neighbors despite some signs of industry and services recovery. The report emphasizes that Pakistan must successfully implement ongoing reforms under the International Monetary Fund program, which has provided necessary macroeconomic stability. Although the country has made strides in assessing agricultural income for taxation, it still deals with significant vulnerabilities and structural challenges, particularly the rising levels of public debt and interest payments that outpace revenue growth. The efforts to cut development spending and reduce non-interest current expenditure were noted, but they primarily impacted long-term growth prospects. The ADB warns of the risks associated with potential deviations from fiscal consolidation, which could heighten government debt levels. The situation demands a careful balance between reform implementation and the need for increased public spending, especially given the added pressures from rising interest costs. Furthermore, the report highlights that any improvement in external positions or inflation rates may motivate the government to relax macroeconomic policies, which could trigger balance-of-payment issues and undermine the fragile stability achieved so far. Predictable and disciplined financial management will be crucial in navigating these complexities. Looking forward, while economic activity is expected to benefit from monetary easing, a consistent focus on policy and external affairs is encouraged to maintain the recovery momentum. The report foresees a light at the end of the tunnel with anticipated growth, projecting an increase to 3% by FY26. However, it cautions that without careful monitoring of the political environment and economic indicators, the country's recovery could be jeopardized, impacting business confidence and consumption levels significantly in the near future.