ADB cuts growth forecast to 3.7%

The Asian Development Bank (ADB) on Thursday cut Pakistan’s economic growth forecast to 3.7%, the third lowest in South Asia, and raised its inflation forecast to 8.3% for the new fiscal year, the second highest in the region after Bangladesh.

The Asian Development Outlook report – the flagship biannual publication – has also listed Pakistan among countries that could face 10% permanent additional tariffs on exports to the United States. The Manila-based lender made the adjustments due to the broader impacts of the Middle East conflict. However, the nation’s comparison with other South Asian countries shows it is more affected than others, partly due to the government’s energy taxation policies.

The ADB report noted that Pakistan’s “economic growth forecast is revised down to 3.7% for FY2027 due to higher energy costs and pressure on remittances”. The economy had grown at the same rate in the last fiscal year.

In April, the ADB had projected Pakistan’s economy growing at 4.5% in this fiscal year, which it has now revised down by almost one percentage point.

At 3.7%, Pakistan will be the third slowest growing economy after Afghanistan and Maldives, both growing at 3%. India is projected to grow at 7.3%, the highest in the region, followed by Bhutan at 7.2%.

The International Monetary Fund (IMF) has given a 3.5% growth forecast for the new fiscal year.

The ADB said Pakistan’s “inflation forecast for FY2027 is also revised up, to 8.3%, given persistent adverse spillover from the Middle East conflict”. This is the second highest inflation rate in the region after Bangladesh’s forecast of 8.8%, indicating Pakistan is facing more troubles than Afghanistan, Bhutan, Maldives, Nepal and Sri Lanka. India’s inflation forecast is just 4% despite being impacted by the war. However, the Indian government did not increase taxes on petrol and diesel the way Pakistan’s government has.

For the last fiscal year, the ADB said inflation breached target ranges in early 2026 in Armenia, Georgia, Mongolia, Nepal, Pakistan, the Philippines, and Viet Nam, and remained above target. In response, monetary policy decisions shifted toward rate holds and selective rate hikes, with central banks calibrating the pace of tightening to contain inflation while limiting the drag on growth. In April-June, policy rates were raised in Indonesia, Pakistan, and Sri Lanka by 100 basis points; the Philippines by 50 points; and Georgia by 25 points.

US tariffs

The ADB also commented on US trade tariffs and listed Pakistan among 60 nations that may face 10% to 12.5% additional tariffs from July 24. The ADB said recent trade policy developments indicate US trade restrictions are likely to remain broad despite the Supreme Court’s invalidation of key tariff measures.

On February 20, 2026, the US Supreme Court ruled invalid tariffs introduced under the International Emergency Economic Powers Act (IEEPA). The Trump administration responded the same day, invoking Section 122 of the Trade Act of 1974 to establish a 10% global import surcharge, effective 24 February 2026.

Section 122, however, provides a narrower basis: tariffs are capped at 15% and limited to 150 days, so the measure is due to expire on 24 July 2026. The administration has signalled it will seek a more durable legal basis through Section 301 of the Trade Act of 1974.

The ADB said the Asian region remains disproportionately exposed to elevated US tariffs. The effective tariff rate for developing Asia and the Pacific stands at 24.8%, nearly double the rate before the April 2025 tariff announcements.

With Section 122 surcharges set to expire, the administration is moving toward replacement measures under Section 301. In March, the US Trade Representative launched two investigations: one into alleged failure in 60 economies to prohibit and enforce bans on imports of goods produced with forced labour.

The ADB said one Section 301 investigation has led to proposed tariffs on 60 economies. On 2 June 2026, the USTR proposed additional tariffs of 10%-12.5%. Among economies in Asia and the Pacific, a 10% tariff was proposed for Bangladesh, Cambodia, Indonesia, Malaysia, Pakistan, and Taipei, China, said the regional lender.

Compared with IEEPA and Section 122 measures, Section 301 rests on a firmer legal basis and carries broader operational scope, but requires a longer implementation process. Public hearings are scheduled for 7-15 July 2026.

The commerce ministry said Pakistan has already banned imports of goods mined, produced or manufactured by forced labour. A Pakistani delegation is currently in the US to broker a deal to avoid the charge that will apply from July 24.