Iran War May Hit Pakistan Worker Remittances: ADB

While warning that an escalation of the Iran War could disrupt labor markets in Gulf economies and potentially affect workers' remittances, the Asian Development Bank has maintained Pakistan's economic expansion forecast at 3.7 percent for fiscal year 2027.

Key points

• Pakistan's economy grew 3.7 percent in FY2026, up from 3.2 percent in FY2025, with the expansion backed by services, manufacturing, agriculture and private investment.
• The ADB retained its July expansion forecast after previously projecting 4.5 percent expansion in its April 2026 outlook.
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• While gross international reserves rose and strengthened the country's external position, fiscal consolidation continued during FY2026.
• ADB Country Director for Pakistan Emma Fan remarked the economy had produced progress in strengthening macroeconomic stability over the past two years.

For context, the Manila based lender additionally projected inflation at 8.3 percent for FY2027, citing rising energy and input costs and wider risks from the Middle East War. While the inflation forecast is above the official estimate of 7 percent, the expansion projection remains below the government's 4 percent budget target.

In practice, the ADB retained its July expansion forecast after previously projecting 4.5 percent expansion in its April 2026 outlook.

Meanwhile, the bank remarked average inflation could rise to 8.3 percent in FY2027, exceeding the State Bank of Pakistan's medium term target range of 5 percent to 7 percent. Higher energy, logistics and agricultural input costs are projected to keep pressure on domestic costs. IMF, SBP Discussions to Commence Today on Key Economic Problems.

Meanwhile, the ADB cautioned that an escalation of the Middle East War could raise Pakistan's energy import costs, rise inflation and disrupt labor markets in Gulf economies, potentially affecting workers' remittances. It additionally identified tighter global financing conditions, tax revenue shortfalls, weather related agricultural shocks and delays in energy sector and state owned enterprise reforms as risks.

Notably, the bank remarked renewed austerity measures by the administration could additionally weaken domestic demand and economic activity if spending cuts are more extensive than anticipated. It emphasized that consistent implementation of economic reforms would remain significant for fiscal and external stability and investor confidence.

Pakistan's economy grew 3.7 percent in FY2026, up from 3.2 percent in FY2025, with the expansion backed by services, manufacturing, agriculture and private investment. While private investment rose 8.6 percent against the backdrop of lower borrowing costs and improved business confidence, agriculture grew 2.9 percent despite flood related losses to major crops. Finance Ministry Clarifies IMF Role in Petroleum Levy.

Notably, the ADB remarked stronger external buffers, continued reforms, improved market access and recent sovereign credit rating upgrades are anticipated to backing investor confidence and private investment. Nevertheless, elevated energy costs and external uncertainty could limit further acceleration in economic expansion.

While gross international reserves rose and strengthened the country's external position, fiscal consolidation continued during FY2026. Pakistan additionally regained access to international capital markets through Eurobond and Panda bond issuances in April and May 2026.

ADB Country Director for Pakistan Emma Fan remarked the economy had produced progress in strengthening macroeconomic stability over the past two years. She remarked maintaining the pace of reforms would be notable for attracting private investment, improving resilience to external shocks and achieving stronger and more inclusive expansion. Stay Connected with ProPakistani.

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Taken together, the developments around iran War May Hit Pakistan Worker Remittances: ADB point to a situation that is still moving, and the coming days should bring more clarity.