Pakistan flags inflation risks from global oil surge, sees industrial and FX gains

Pakistan’s economy shows cautious resilience despite rising global oil prices linked to the US-Israel war on Iran, the Ministry of Finance said Tuesday, projecting inflation could climb up to 8.5 percent in March 2026.

“Rising global oil prices and potential supply chain disruptions may exert pressure on industrial input costs,” the ministry said in its Monthly Economic Update and Outlook, while noting the near-term economic outlook remains cautiously optimistic.

Industrial activity is gaining momentum, supported by higher imports of textile machinery, transport, and construction-related inputs. Large-scale manufacturing recorded strong double-digit growth in January, signaling a robust industrial recovery.

Remittances, particularly linked to Eid, and growing information technology exports are expected to support foreign exchange inflows. The ministry said the current account deficit is likely to remain manageable, even as global oil volatility threatens the import bill.

The report highlighted fiscal and energy measures aimed at cushioning the economy, including maintaining petroleum reserves, managing energy demand, and enforcing austerity measures. “Inflation is anticipated to remain within the range of 7.5 to 8.5pc for March 2026,” it added.

Pakistan’s foreign exchange reserves reached a four-year high, reflecting stronger central bank holdings and improved crisis response capacity. February also recorded the largest current account surplus of the year, supported by remittances and lower imports.

The finance ministry concluded that while geopolitical and external risks persist, ongoing domestic reforms, energy planning, and positive industrial and export trends are laying the groundwork for sustainable economic growth and resilience in the coming months.