ISLAMABAD — Pakistan’s inflation is projected to edge up to 6 percent in the next fiscal year as the combined impact of devastating floods and higher gas tariffs puts renewed pressure on household budgets, the Asian Development Bank (ADB) said on Tuesday.
In its latest Asian Development Outlook report, the ADB noted that supply chain disruptions caused by heavy monsoon flooding in Punjab the country’s key food-producing province are expected to push food prices higher in the months ahead. The floods, worsened by excess water released from dams in India, forced more than 2.5 million people from their homes and left vast tracts of farmland under water. Economists warn this destruction could translate into food shortages and price hikes across the country.
Adding to the pressure, the government in July approved significant revisions to gas tariffs for FY2025-26, including a 50 percent increase in fixed charges for domestic users. The adjustment, part of reforms agreed with the International Monetary Fund (IMF), aims to rationalize energy pricing and shift subsidies toward targeted support for low-income households.
“Average inflation is projected to increase to 6.0 percent in FY2026, reflecting the impact of flood-related supply chain disruptions on food prices and the increase in gas tariffs,” the ADB report said. It added that the State Bank of Pakistan is likely to adopt a cautious approach in easing monetary policy, keeping inflation within its medium-term target range of 5–7 percent.
Growth Outlook and Risks
Despite inflationary pressures, the ADB expects Pakistan’s overall economic activity to strengthen in FY2026, supported by better foreign exchange reserves and renewed business confidence, particularly after the recent trade agreement with the United States. Real GDP growth is forecast at 3 percent, underpinned by fiscal incentives for the construction sector and ongoing recovery efforts in flood-affected regions.
Still, the bank warned that damage to infrastructure and farmland could weigh heavily on growth. Rehabilitation programs are expected to soften the blow, but progress will depend on the speed of reconstruction and the effectiveness of government measures.
The report also pointed to structural reforms under the IMF’s $7 billion Extended Fund Facility, which began in October last year, saying Pakistan has made “considerable” progress in stabilizing its macroeconomic fundamentals.
“Policy consistency and climate resilience remain vital to maintaining the growth momentum,” the ADB stressed, while cautioning that downside risks from natural disasters to policy slippages remain significant.
