Pakistan tells IMF Iran war impact limited, current account deficit seen near $2 billion

Pakistan has informed the International Monetary Fund (IMF) that the ongoing US–Israel conflict with Iran is expected to have limited impact on the country’s economy, projecting that the current account deficit may remain around $2 billion while the effect of higher fuel prices on inflation may range between 0.2% and 0.3%, The Express Tribune reported. 

According to officials, the IMF had sought estimates on the potential impact of the conflict on Pakistan’s current account balance, economic growth, remittances and inflation.

The government also informed the IMF that foreign remittances are expected to remain stable despite the conflict in the Middle East, with inflows projected to reach $43 billion during the current fiscal year. Officials noted that around 14 million Pakistanis are working abroad, including about 4.5 million in Middle Eastern countries, many of whom are employed in semi-skilled and skilled essential services. Based on the assumptions, the government expects remittances to increase to $43 billion during the current fiscal year.

These projections were presented during two separate sessions between the Finance Ministry and IMF representatives to assess the economic implications of the regional conflict.

The government maintained that Pakistan’s economy could still grow by around 4% during the current fiscal year, slightly below the pre-conflict projection by about 0.2%.

The government informed the IMF that rising international oil prices remain the primary external risk. However, officials argued that the impact on the oil import bill could be partially offset by reduced agricultural imports following improved domestic crop production.

Under the government’s earlier projections, the current account deficit was expected to remain around $1 billion. Officials now estimate it could rise to approximately $2 billion if global oil prices remain near $100 per barrel.

An internal assessment presented to the Petroleum Committee suggested that oil prices at $100 per barrel could increase Pakistan’s oil import bill by about $300 million per month. If prices rise to $120 per barrel, the additional monthly impact could reach around $500 million.

Officials said the government expects to offset part of the increase by reducing agricultural imports, which could save about $800 million.

The IMF was also briefed on the potential inflationary impact of higher petroleum prices following a recent increase in domestic fuel rates.

The government recently raised petrol prices by Rs55 per litre. Officials said the estimated impact of higher fuel prices on overall inflation could remain limited at around 0.2% to 0.3%.

According to officials, petrol carries relatively low weight in the consumer price index basket, which limits its impact on the overall inflation rate despite affecting household spending.

Based on these projections, the government expects inflation to remain below 6.5% during the current fiscal year.

However, officials noted that inflation risks could increase next year depending on the duration and intensity of the conflict in the Middle East.

The State Bank of Pakistan also indicated that the evolving geopolitical situation has not yet significantly altered the macroeconomic outlook.

In its latest statement, the Monetary Policy Committee said the initial assessment suggests that key macroeconomic indicators for fiscal year 2026 remain within previously projected ranges.

However, the central bank cautioned that risks to the outlook have increased amid global uncertainty.

The central bank also noted that Pakistan’s macroeconomic conditions, including inflation trends and foreign exchange and fiscal buffers, are stronger compared with the period when the Russia–Ukraine conflict began in early 2022.

The Monetary Policy Committee added that the economic impact will depend largely on how long the conflict continues and stressed the importance of prudent fiscal and monetary policies in strengthening the economy’s resilience to external shocks.