Pakistan’s Economy Shows Steady Growth in FY2025 with Reforms, Stability

The latest forecast by the Asian Development Bank (ADB) indicates a steady real GDP growth rate of 2.5% in FY2025, mirroring the performance of FY2024.

Pakistan’s economy is exhibiting promising signs of stability and recovery, marked by modest growth for the fiscal year 2025 (ending 30 June 2026). The latest forecast by the Asian Development Bank (ADB) indicates a steady real GDP growth rate of 2.5% in FY2025, mirroring the performance of FY2024. However, projections suggest a slight uptick in growth, reaching 3.0% by FY2026, underscoring a positive medium-term outlook.

According to the ADB’s Asian Development Outlook (ADO) April 2025, the country’s economic trajectory has been significantly influenced by the successful implementation of tight macroeconomic policies and the progress made in crucial economic reforms. A primary factor in this growth is the IMF Extended Fund Facility arrangement, which commenced in October 2024. Adherence to the rigorous economic adjustment program under the IMF framework is essential for ensuring resilience, sustainable growth, and the creation of a more robust economic structure moving forward.

Key Drivers of Economic Growth

One of the core drivers behind Pakistan's stable economic performance is its increasingly stable macroeconomic environment. This stability has been bolstered by substantial reforms in critical sectors such as taxation policy and the viability of the energy sector. The government’s commitment to improving the fiscal balance and energy sector efficiency is crucial in sustaining this positive outlook.

ADB’s Country Director for Pakistan, Emma Fan, remarked, “Pakistan’s economy has benefited from improved macroeconomic stability through robust reform implementation in areas such as tax policy and energy sector viability.” She emphasized that this stability would continue to drive growth through FY2025 and into FY2026, with further reforms being critical to reinforcing fiscal health and enhancing the country’s external buffers.

In FY2025, private sector investment is anticipated to rebound due to the positive effects of ongoing economic reforms. The perception of greater stability within the economy, coupled with a stabilized foreign exchange market, is expected to inspire more confidence among investors. Moreover, economic activity within both the industrial and service sectors is projected to benefit from recent monetary easing, which has furthered macroeconomic stability.

Key Economic Indicators: Inflation, Remittances, and Demand

A notable feature of the ADB’s latest report is the optimism surrounding inflation. Pakistan’s inflation rate, which has been a significant challenge for the economy in the past, is projected to moderate substantially. The average inflation rate is expected to decline to 6.0% in FY2025 and further decrease to 5.8% in FY2026. This reduction is attributed to various factors, including the moderation of food inflation, stable global commodity prices, and domestic demand conditions, as well as a favorable base effect.

Strong remittance inflows, a stable foreign exchange environment, and improved monetary conditions are also expected to provide a solid foundation for aggregate demand. These factors are set to support domestic consumption and contribute to sustained economic activity throughout the year.

Structural Reforms for Inclusive Growth

Despite these encouraging projections, Pakistan’s economy still faces significant challenges, particularly regarding gender inclusivity in the labor market. Female labor force participation remains lower than regional and global peers, representing an untapped source of potential productivity and economic output. The country’s policymakers are increasingly recognizing the importance of enabling women to enter the workforce as a key strategy for advancing gender equality and boosting overall economic performance.

Experts suggest that greater investments in girls’ education and vocational training programs could equip women with the necessary skills to thrive in the job market. Moreover, addressing challenges related to public transport and ensuring the safety of women while traveling can remove barriers that currently prevent many women from entering the workforce. Expanding the labor force by facilitating women’s participation could help improve productivity and contribute to a more inclusive economic growth model.

Global Economic Factors and Trade Challenges

While Pakistan's economic outlook remains positive, it is not immune to global risks. The ADB report notes that the recent tariff changes introduced by the US administration in April 2025 could pose a challenge to growth in the region. These higher tariffs, which were announced after the ADO forecast was finalized, could potentially slow down trade flows and impact countries reliant on global markets, including Pakistan.

However, the ADB’s projections only account for the existing tariffs in place at the time of the report's release. The full impact of these new tariffs will only become evident in the coming months, as the global trade environment continues to evolve.

Conclusion: A Promising Path Ahead

In conclusion, Pakistan’s economic growth in FY2025 appears to be on a solid footing, driven by a combination of successful reform implementation, stable macroeconomic conditions, and favorable global factors. Although challenges remain—particularly in the areas of inflation and labor market inclusivity—the outlook remains optimistic as long as the government continues its reform agenda and prioritizes the stability of its key economic sectors. Sustaining this growth trajectory and ensuring that reforms translate into tangible economic benefits for all will be pivotal in achieving long-term prosperity for the country.