ISLAMABAD: The Ministry of Planning has warned the recent escalation in tensions in the Middle East and Persian Gulf could lead to higher energy prices, which may push up inflation and weaken export competitiveness due to rising production and freight costs.
In its Monthly Development Outlook released on Saturday, the ministry stated growing tensions in the Middle East and Persian Gulf have increased volatility in global energy and financial markets, creating potential risks for Pakistan’s external sector.
“Rising oil prices, driven by disruptions around strategic Strait of Hormuz — through which about 20pc of world’s oil supply passes — could significantly increase Pakistan’s import bill, as petroleum products account for nea ification, stronger export facilitation and contingency planning to safeguard overseas workers and maintain external sector stability,” the report added.
The report noted Pakistan’s economy showed notable stabilisation during the first eight months of FY2026, supported by prudent and well-coordinated macroeconomic management.
Average inflation eased during July-February FY2026, although a temporary spike was observed in February 2026 due to electricity price adjustments. Large-Scale Manufacturing (LSM) recorded cumulative growth during July-December FY2026, compared with a contraction last year, indicating a recovery in economic activity. Construction and automobile sectors also showed strong momentum.
Exports of goods and services remained resilient, supported by strong growth in services sector. Imports increased in line with recovering economy, while remittances continued to support external sector. Fiscal performance also improved, with FBR tax collection rising and fiscal balance turning positive.
However, external risks — particularly geopolitical tensions and rising global oil prices — continue to pose downside risks to the economic outlook.
On the development side, Central Development Working Party (CDWP) reviewed 11 agenda items in February 2026, approving four projects, recommending five projects to Executive Committee of the National Economic Council (ECNEC) and clearing two concept proposals.
Cost-rationalisation efforts during July-January FY2026 resulted in savings of Rs9.9 billion, reflecting government’s commitment to efficient use of resources. Public investment is expected to create around 18,336 direct and 7,320 indirect job opportunities over medium term.
Under the Public Sector Development Programme (PSDP) 2025-26, Rs361 billion (36pc of the allocation) has been utilised so far, with major spending directed toward infrastructure, social sectors and special areas. Foreign-funded projects continue to support priority initiatives.
Several development activities also took place in February, including Pakistan Governance Forum 2026, release of preliminary poverty estimates, international engagements with IMF and development partners and launch of a Five-Year Economic Cooperation Roadmap with Kazakhstan.
“Looking ahead, development outlook remains cautiously optimistic. Stabilisation is expected to continue with sustained industrial recovery, moderate inflation, strong remittance inflows and improved fiscal discipline — provided external uncertainties remain manageable,” the report stated.
Overall, improving macroeconomic stability, moderating inflation, continued industrial recovery, strong remittance inflows and steady fiscal performance are encouraging. However, the ongoing Iran war and regional tensions are creating uncertainty.
The report concluded if uncertainty persists, rising global oil prices could increase domestic inflation, regional instability may widen trade and current account deficits and investor confidence could weaken due to geopolitical risks.
