| DR. MUHAMMAD SHAHID |
| Pakistan’s economy, so often teetering on the edge of collapse, has finally found some breathing space. According to the Asian Development Bank’s Asian Development Outlook (September 2025), growth ticked up in fiscal year 2025, underpinned by increased investment and painful but necessary policy reforms. The Bank projects GDP to expand by 3% in FY2026, signaling cautious optimism. The recent stabilization owes much to Pakistan’s return to the IMF’s Extended Fund Facility last October. Fiscal discipline, exchange rate flexibility, and energy pricing reforms have helped rebuild external buffers and restore a measure of business confidence. The announcement of a US-Pakistan trade agreement has further buoyed investor sentiment, promising fresh opportunities for exports. Yet, the optimism is fragile. Severe floods this summer devastated farmland and infrastructure, disrupting supply chains and pushing up food prices. Inflation is forecast to hit 6% in FY2026, with higher gas tariffs adding to household pressures. While the government has rolled out incentives for construction to aid recovery, such fiscal measures risk colliding with IMF demands for austerity. Structural fault lines remain glaring. Pakistan’s chronically low tax base, loss-making state-owned enterprises, and mounting energy sector debt continue to drag the economy down. Add to that the looming specter of climate shocks, which are no longer rare disasters but recurring realities, and the fragility of the recovery becomes stark. For policymakers, the road ahead is a tightrope walk. Sustain growth without reigniting inflation, push reforms without triggering political backlash, and invest in climate resilience without fiscal slippage. The ADB’s message is clear, that is. consistency, not complacency, must drive policy. Pakistan’s economy is no stranger to false dawns. Whether this moment marks a genuine turning point or just another pause before the next crisis depends not on external lenders but on Islamabad’s political will. For now, the recovery is real, but so are the risks. Source: ADB Economic Outlook |
