ISLAMABAD: The Asian Development Bank (ADB) said in its latest report on Tuesday that Pakistan’s average inflation is expected to rise to 6 percent during fiscal year 2026, reflecting the impact of flood-related supply chain disruptions and recent increase in gas tariffs on prices.

Heavy monsoon rains and excess water released from dams in India triggered floods in Pakistan’s eastern Punjab province, also known as its breadbasket province, since late August. Over 2.5 million people were evacuated to safer locations as thousands of acres of farmland were inundated with floodwaters. Experts warned of looming food shortages and price hikes due to the deluges.

In July, Pakistan’s government revised gas prices for the fiscal year 2025-26 and okayed a 50 percent increase in fixed charges for domestic consumers. The move was in line with Pakistan’s structural benchmarks agreed with the International Monetary Fund (IMF), including rationalization of captive power tariffs and a shift from subsidies to direct, targeted support for low-income consumers.

“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 ABD said in a report. “In response, the central bank is expected to adopt a cautious approach to easing monetary policy to stabilize inflation within its medium-term target range of 5 percent–7 percent.”

The bank said Pakistan’s economic activity is expected to strengthen in FY2026, supported by improved external buffers and renewed business confidence following the US-Pakistan trade agreement.

“However, the damage caused to infrastructure and farmland by the recent floods may weigh on growth,” it warned. “Recovery and rehabilitation efforts, bolstered by fiscal incentives for the construction sector announced in the FY2026 budget, are expected to partially offset the adverse impact.”

Citing the ‘Asian Development Outlook for September 2025,’ the ADB’s annual flagship economic publication, the bank said Pakistan’s growth is projected to continue in the medium term, with real gross domestic product (GDP) growth forecast at 3.0 percent in FY2026, as macroeconomic stability deepens through sustained reforms addressing structural vulnerabilities.

It noted that Pakistan’s economic reform has progressed “considerably” under the IMF’s $7 billion Extended Fund Facility arrangement which began in October last year.

“Policy consistency and climate resilience remain vital to maintaining the growth momentum. Downside risks to the outlook remain high,” the ADB stressed.