Experts warn oil price surge could cost Pakistan up to 1.5% of GDP

KARACHI: Pakistan may face significant economic challenges if the ongoing regional conflict continues to keep global oil prices at or above $100 per barrel, according to economic experts. Former finance minister Hafiz Pasha cautioned that the country’s gross domestic product (GDP) could decline by 1.0 to 1.5 percent, with the impact potentially worsening if the conflict extends beyond six months.

Pasha highlighted that the most serious threat is to Pakistan’s external sector, which could experience a negative shock of $12 to $14 billion over the coming year. This projection is largely attributed to a potential 25 to 30 percent increase in petroleum imports as a result of rising oil prices. Additionally, escalating global shipping and insurance premiums, driven by heightened regional risks, are expected to further inflate the import bill.

Remittances, which constitute a critical source of foreign exchange for Pakistan, also present a vulnerability. Pasha noted that approximately 55 percent of Pakistan’s remittances originate from the Middle East, a region directly affected by the ongoing conflict. Any disruption in remittance flows could further strain the country’s external finances.

Former State Bank of Pakistan governor Dr. Ishrat Husain suggested that implementing daily fuel price adjustments could help reduce incentives for hoarding and speculation in the domestic market. This measure, he argued, may help stabilize local fuel supplies amid volatile global prices.

Economist Kaiser Bengali added that the International Monetary Fund (IMF) might leverage the current crisis to press for deeper economic reforms and concessions from Pakistan as part of ongoing or future financial support programs.

Experts agree that the persistence of high oil prices and regional instability could have far-reaching consequences for Pakistan’s economy, particularly in terms of its external sector and fiscal stability.