Pakistan’s economy may face challenges if the strikes by Israel and the United States on Iran escalate into a broader regional conflict.
It could jeopardise oil supplies and remittance flows that are crucial to the country’s balance of payments, as stated by officials and independent economists on Saturday.
The United States and Israel have launched strikes against Iran after weeks of escalating tensions, while Pakistan has also encountered renewed border clashes with Afghanistan in recent weeks.
Regional conflict may affect Pakistan’s economy
Economists caution that a larger conflict in the Middle East could swiftly undermine Pakistan’s hard-earned macroeconomic achievements under a $7 billion International Monetary Fund program.
This could happen due to the country’s significant dependence on Gulf states for imported fuel and worker remittances, which are anticipated to reach $41 billion in this fiscal year.
Iran has already targeted several neighboring nations in an effort to strike US military installations in the region, heightening concerns of a wider escalation and eliciting condemnation from regional governments, including Pakistan.
In view of the situation, the Finance Minister of Khyber Pakhtunkhwa, Muzzammil Aslam said, “Pakistan’s western borders are in a state of war.”
“Considering the limited trade with the western borders, Pakistan’s exports are unlikely to be impacted. However, if the conflict spreads throughout the Middle East, it will certainly affect remittances.”, he added.
Pak Afghan conflict could delay investments
An economist, Farrukh Saleem said, “If the conflict between Iran and the United States intensifies and oil prices surge significantly, Pakistan is expected to experience immediate repercussions.”
“A rise in crude oil prices substantially increases the import bill, exerts pressure on the current account, and undermines the value of the rupee”, he added.
He further explained that such circumstances would contribute to inflation and restrict the State Bank of Pakistan’s ability to lower the policy rate, which remained unchanged at 10.5 percent in January.
“The tensions between Pakistan and Afghanistan primarily pertain to security issues,” he added.
“While they do not directly affect oil prices, they elevate country risk, postpone investments, and put pressure on fiscal resources”, the economist stated.
In reply to a question, Saleem indicated that he did not anticipate an immediate crisis in the balance of payments.
“Most conflicts in the Middle East since 2006 have exhibited a consistent pattern, initial sharp strikes, measured retaliation, and subsequent backchannel de-escalation,” he added further.
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