Winning Bizness Desk
MumbaiTensions in the Middle East and a deepening oil crisis are set to tighten pressure on Pakistan’s fragile economy. If global crude prices continue to rise, inflation in the country could once again move into double digits and touch 11 percent. A recent Pakistan strategy report by Dawn and Topline Securities highlights that the local currency may also weaken sharply, with the Pakistani rupee likely to slide to 298 against the US dollar.
Crude oil surge may push inflation higher
The report warns that crude oil prices could climb as high as 120 dollars per barrel, worsening inflation trends. Even if oil remains near 100 dollars per barrel, inflation will stay elevated. The analysis shows that every 10-dollar increase in oil prices may raise inflation by nearly 50 basis points.
- Oil at 120 dollars per barrel could push inflation close to 11 percent
- Average inflation may stay between 9 and 10 percent over the next year
- A spike is likely in the fourth quarter of fiscal year 2026
If inflation crosses this mark, the State Bank of Pakistan may be forced to raise interest rates again, tightening borrowing conditions across sectors.
Growth outlook cut amid rising prices
Pakistan’s economic growth is also expected to slow due to persistent inflationary pressure. The GDP growth forecast for fiscal year 2027 has been revised downward from 4.0 percent to a range of 2.5 to 3.0 percent. For fiscal year 2026, growth is still expected to remain between 3.5 and 4.0 percent.
- Industrial sector may face the biggest hit
- Growth in industry could fall from 4 percent to just 1 percent
This slowdown reflects weakening demand and higher production costs across the economy.
External imbalance risks continue to grow
The report flags serious risks to Pakistan’s external balance if imports are not controlled. The current account deficit could cross 8 billion dollars in fiscal year 2027, putting more strain on foreign exchange reserves. At the same time, the fiscal deficit for fiscal year 2026 is expected to remain between 4.0 and 4.5 percent of GDP, well above targets set by the International Monetary Fund.
Stock market slump reflects deeper weaknesses
Pakistan’s stock market has emerged as one of the worst-performing markets globally, largely due to heavy dependence on imported energy. The country imports nearly 85 percent of its energy needs. Petroleum imports alone could reach 15 billion dollars in fiscal year 2026.
- Stock market has already fallen by around 15 percent in the first quarter
- Rising import bills continue to weigh on investor sentiment
The reliance on costly imports is amplifying financial stress across sectors.
Exports, remittances likely to weaken further
Pakistan may also see a decline in key foreign inflows. Remittances are expected to drop by 3.5 percent, while inflows from Gulf countries could fall by as much as 10 percent. Exports may decline by around 4 percent, adding to economic concerns. The rupee is projected to weaken further and may touch 298 against the dollar by fiscal year 2027.
Understanding inflation and its real impact
Consumer Price Index, or CPI, measures changes in the average prices of goods and services purchased by households. When inflation is said to be 11 percent, it means the average cost of living has increased by that margin compared to the previous year.
- Higher inflation reduces purchasing power
- It raises daily expenses for households
- It forces central banks to tighten monetary policy
The combined effect of rising oil prices, weak currency and slowing growth suggests a challenging period ahead for Pakistan’s economy.
