Pakistan's fragile economic recovery faces a mounting threat as Middle East tensions push global oil prices higher, fueling fears of sustained double-digit inflation. A Dawn report warns that rising energy costs and disrupted supply chains are tightening pressure on external finances.
The brokerage firm, Topline Securities, in its “Pakistan Strategy” report, adds that the prolonged instability is also hurting markets, with near-term recovery hinging on a peaceful resolution of the regional conflict.
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The report offers a granular look at the potential fallout for FY26 and beyond:
Inflation and Interest Rates
Analysts project that inflation could average 9–10% over the next year, with the final quarter of FY26 potentially exceeding 11%.
These forecasts assume a benchmark oil price of $100 per barrel. For every $10 increase in oil prices, Pakistan's inflation burden is expected to rise by roughly 50 basis points.
If oil prices rise to $120 per barrel, inflation could increase further, which may force the State Bank of Pakistan to raise interest rates more aggressively to maintain real returns.
Growth Slowdown
Citing the impact of rising costs, Topline Securities has slashed its GDP growth forecast for FY27 to 2.5–3.0%, down from an original estimate of 4.0%.
While FY26 growth is currently estimated at 3.5–4.0%, the industrial sector is at high risk of stagnation, with potential growth collapsing to just 1% from previous highs of nearly 4%.
Fiscal Strain
Without strict import controls, the current account deficit for FY27 could rise above $8 billion, risking further pressure on already weak foreign exchange reserves.
Heavily dependent on imported energy, which makes up about 85% of its needs, Pakistan's economy has also weighed on its stock market. The Pakistan Stock Exchange (PSX) has been among the world's worst performers, falling 15% in the first quarter of the year.
Consequently, the Pakistani rupee is forecast to weaken further, with analysts predicting it could slide to 298 per USD by FY27.
The report concludes that a prolonged conflict could deepen macroeconomic instability to critical levels.
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