ADB warns floods could fuel inflation in Pakistan, growth outlook remains positive

ISLAMABAD: The Asian Development Bank (ADB) has cautioned that recent Pakistan floods could trigger inflationary pressures and slow economic growth, despite signs of recovery.

In its Asian Development Outlook report, the ADB said natural disasters such as floods pose serious risks to Pakistan’s economic stability and growth trajectory.

The report highlighted that GDP growth is expected to remain around 3% in FY2026, with inflation averaging 6% due to supply chain disruptions, higher food prices, and an increase in gas tariffs.

According to the ADB, Pakistan’s economy has shown improvement in 2025 under the IMF reform program, supported by policy reforms and macroeconomic stability.

The report projects further improvement in foreign exchange reserves and higher investment inflows, with a potential boost in business confidence from a forthcoming Pakistan–US trade agreement in FY2026.

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ADB Country Director Emma Fan said Pakistan’s medium-term growth outlook remains positive, though structural challenges persist.

She added that repeated natural disasters and the recent floods could weigh heavily on infrastructure, agriculture, and food supplies.

The report noted that budgetary incentives for the construction sector may partly offset the damage, while the State Bank of Pakistan is expected to pursue a cautious monetary policy to manage inflation.