Pakistan's economy is expected to grow by 3.7% in fiscal year 2026-27, with the Asian Development Bank cutting its forecast as higher energy costs and pressure on remittances threaten the recovery while inflation is projected to accelerate to 8.3%. In its Asian Development Outlook July 2026, the ADB said preliminary data showed Pakistan's economy expanded by 3.7% in FY26, which ended on June 30. That performance was supported by strong growth in industry and services alongside more modest gains in agriculture. The outlook for FY27, however, has been revised down to 3.7%. The bank identified higher energy costs and pressure on workers' remittances as factors weighing on the country's prospects. Inflation poses an additional challenge. The ADB revised Pakistan's FY26 inflation estimate upwards to 7.2%, citing rising food and fuel costs. For FY27, consumer-price growth is expected to climb further to 8.3% as adverse spillovers from the Middle East conflict persist. Pakistan's difficulties form part of a broade r deterioration in the economic outlook for developing Asia and the Pacific. The ADB reduced its regional growth forecast for 2026 to 4.9%, compared with growth of 5.5% in 2025. The latest projection is 0.2 percentage points below the bank's April estimate. Prolonged disruption to energy markets caused by the Middle East conflict has weighed more heavily on the region than previously expected. For 2027, the ADB maintained its regional growth forecast at 5.1%, anticipating that economic activity will recover as those pressures ease. The bank nevertheless expects disruption to global energy markets to unwind only gradually, despite a framework agreement signed in June. The effects are spreading beyond energy. Higher costs for fertilisers and other commodities, together with supply-chain disruption, are expected to keep inflationary pressure elevated. Regional inflation is now projected at 4.3% in 2026, compared with 3% in 2025. That represents an upward revision of 0.7 percentage points from the ADB's April f orecast. The regional inflation projection for 2027 remains unchanged at 3.4%. ADB Chief Economist Albert Park said durable implementation of the framework agreement would help normalise global energy markets, although the speed of adjustment remained highly uncertain and downside risks were significant. He described economic growth across developing Asia and the Pacific as resilient but said persistent pressures stemming from the conflict required policymakers to balance support for economic expansion against the need to contain inflation. The risks extend beyond current energy prices. The ADB warned that renewed escalation of the conflict and prolonged geopolitical uncertainty could tighten energy markets further, increase risk premia and intensify inflationary and external pressures. Global financial conditions present another threat. Sovereign bond yields and borrowing costs are rising, while fiscal deficits are expected to widen in several economies. Higher tariffs and continuing uncertainty over trade policy could further restrain activity. Rising fertiliser prices, meanwhile, pose risks to agricultural production and food security. Against this backdrop, the ADB has reduced its 2026 growth projections for most subregions, with developing East Asia the exception. The forecast for China remains unchanged at 4.6% in 2026 and 4.5% in 2027, supported by strong exports and infrastructure investment. India is expected to grow by 6.6% this year, a downward revision attributed to the effect of higher energy costs on domestic demand. Its 2027 projection remains at 7.3%. Growth estimates for Southeast Asia and the Pacific have also been trimmed as weaker domestic demand and tourism combine with rising inflation and more expensive imports. For Pakistan, the ADB's projections present a particularly awkward combination. The economy is expected to maintain the same 3.7% growth rate recorded in FY26 rather than accelerate, while inflation is forecast to rise from 7.2% to 8.3%. The country therefore enters FY27 facing p ressure from both sides of the economic equation: costly energy and weaker remittance prospects threaten growth, while the continuing repercussions of the Middle East conflict are expected to keep food and fuel prices elevated. Much will depend on how quickly those external disruptions subside. The ADB expects eventual normalisation but cautions that the timing remains uncertain. Until then, Pakistan's projected 3.7% expansion will have to contend with an increasingly difficult combination of higher prices, expensive energy and pressure on an important source of foreign-currency inflows.