Rising oil prices pose risk to Pakistan’s import bill, macroeconomic conditions, finance ministry warns

ISLAMABAD: Showing cautious optimism over Pakistan’s short-term economic outlook, the finance ministry on Tuesday warned that rising global oil prices due to the US-Israel war on Iran posed risks to the country’s import bill and macroeconomic conditions in the long-term.

“Rising global oil prices and potential supply chain disruptions may exert pressure on industrial input costs”, said the Ministry of Finance in its Monthly Economic Update and Outlook, with the estimated rate of inflation growing by up to 8.5 per cent for the month.

It said the near-term outlook for the country’s economy remained cautiously optimistic despite emerging geopolitical risks. Recent data indicated improving momentum in the industrial sector, with higher imports of textile machinery, transport and construction-related inputs, likely to translate into higher domestic industrial activity.

The finance ministry said the government was actively pursuing prudent measures, including maintaining adequate petroleum reserves, managing energy demand, and adhering to fiscal austerity to protect the domestic economy.

“Inflation is anticipated to remain within the range of 7.5 to 8.5pc for March 2026,” it said.

On the external front, high inflows of remittances were expected, particularly an increase in money transfers associated with Eid, although their trajectory would depend on economic conditions in the host countries.

Encouraging trends in information technology exports were also providing additional support to foreign exchange earnings. The current account deficit was likely to remain manageable, while rising oil prices posed a risk to the import bill, the ministry said.

Notwithstanding the downside risks amid global uncertainties, the latest indicators suggested that the economy was better positioned to absorb external shocks and maintain overall resilience in the coming months, it added.

The ministry further said the country’s economy experienced encouraging progress across key indicators during the first eight months of the current financial year. Notably, the current account recorded its largest surplus of the year in February, supported by the growth in remittances and the decline in imports. IT exports continued the growth momentum, reinforcing the country’s development in digital transformation.

Therefore, foreign exchange reserves rose to a four-year high figure, with a notable rise in central bank holdings, signalling stronger sovereign liquidity and better crisis response capacity.

Meanwhile, large-scale manufacturing recorded strong double-digit growth in January, adding further impetus to industrial recovery and supporting overall economic activity.

In the wake of the emerging US-Israel and Iran conflict, proactive planning and austerity measures on the energy front were helping secure adequate fuel reserves, thereby ensuring smooth operations. Despite regional and external challenges, the country’s preparedness and reform measures, along with encouraging progress on the domestic front, were laying the groundwork for sustainable growth prospects, the ministry concluded.