Pakistan’s economic outlook has come under renewed pressure after the International Monetary Fund warned that the ongoing Middle East war could slow growth, raise inflation, and intensify financial stress for the country.
In its latest Regional Economic Outlook Report, the IMF flagged rising global uncertainty as a major external risk for Pakistan, which remains under a $7.2 billion IMF support programme aimed at restoring macroeconomic stability and advancing long-delayed structural reforms.
Growth outlook under pressure
According to the IMF, Pakistan’s gross domestic product (GDP) growth could decline by around 0.6 percentage points if external shocks linked to the Middle East conflict persist.
The report notes that fragile investor confidence, tighter global financial conditions, and geopolitical instability could undermine the country’s fragile recovery.
Despite some stabilization in recent months, the IMF cautioned that Pakistan remains vulnerable to global developments beyond its control.
Oil prices emerge as key risk
One of the most immediate threats highlighted by the IMF is the sharp rise in global oil prices. Oil prices have surged beyond $100 per barrel following the closure of the Strait of Hormuz and escalating regional hostilities.
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The IMF warned that even a 10% increase in oil prices could significantly worsen Pakistan’s inflation outlook and widen its trade imbalance. Higher fuel costs would also increase pressure on government finances through subsidies and energy-sector liabilities.
External and fiscal pressures intensifying
The IMF report warned that Pakistan’s current account balance could deteriorate by around 0.3%, while fiscal pressures may rise due to increased import costs and slower economic activity.
Borrowing costs have already increased amid global uncertainty, and the IMF cautioned that a prolonged conflict could trigger broader financial market stress, making external financing more difficult and expensive for Pakistan.
Reliance on Gulf region adds vulnerability
The IMF also pointed to Pakistan’s heavy dependence on oil imports and remittances from Gulf countries as a structural weakness.
If the Middle East conflict intensifies or drags on, remittance inflows and trade links could weaken, placing additional strain on foreign exchange reserves and household incomes.
The report further highlighted risks stemming from high public debt levels and banks’ substantial exposure to government securities, which could amplify financial instability during external shocks.
Ceasefire offers limited relief
While the IMF described the recent ceasefire in the region as a positive and stabilizing development, it stressed that uncertainty remains elevated and risks have not fully subsided.
The Fund concluded that Pakistan’s economic stability will depend on a combination of continued domestic reforms, disciplined fiscal management, and the evolution of global geopolitical conditions.
