Pakistan is among the countries most vulnerable to negative economic spillovers from the ongoing Iran war, former State Bank of Pakistan Governor Murtaza Syed warned in a post on social media platform X.
Syed said Pakistan also has very limited policy space to absorb the economic fallout, noting that the country tends to face recurring crises whenever global commodity prices rise. He pointed out that fuel and food account for more than half of Pakistan’s Consumer Price Index (CPI) basket, while nearly 45 percent of the import bill—around $25 billion—is tied to these essential commodities. At the same time, about 44 percent of remittances, roughly $16 billion, come from Gulf Cooperation Council (GCC) countries, making Pakistan highly exposed to regional instability.
He said that, by historical standards, Pakistan is entering this shock from its weakest macroeconomic position, with limited ability to respond both domestically and globally. Despite nearly four years of painful stabilization efforts, the country now faces another major shock to growth, inflation, and the rupee—one that he argued is beyond the scope of the current IMF program.
Syed described the situation as a “stagflationary shock,” warning that Pakistan’s GDP per capita has remained stagnant over the past decade, placing it in a position similar to some conflict-affected and low-income economies. He cautioned that the population can ill afford another economic downturn.
Assuming oil prices remain near $100 per barrel in 2026, he estimated that Pakistan’s fuel and food import bill could rise by 40 percent to around $35 billion, while remittances could decline by 25 percent to about $27 billion. This, he said, would widen external financing needs by roughly $20 billion—exceeding the country’s foreign exchange reserves, which stand at about $16 billion.
Syed warned that such conditions could trigger a sharp deterioration in macroeconomic stability. He said the rupee could depreciate by 10–20 percent, inflation could rise by 6–8 percent, and economic growth could fall by 2–3 percentage points. He also noted that credit rating agencies could downgrade Pakistan, while domestic asset prices, including real estate, may decline.
He added that under the current IMF framework, policy options remain constrained, with likely measures including tighter fiscal policy, higher interest rates, and further currency depreciation.
However, Syed argued that a more effective response would involve fiscal stimulus and foreign exchange intervention, supported by increased fiscal space and foreign inflows. He said this would require debt reprofiling, deferred financing arrangements, and mobilization of bilateral financial support.
He further emphasized the need for Pakistan to secure additional financing from international partners, manage its current account deficit, reduce fuel consumption, and expand financing facilities for oil, gas, and fertilizers from countries such as Saudi Arabia, the United Arab Emirates, and Qatar.
Calling for urgent fiscal discipline, Syed urged cuts in wasteful spending and stressed the importance of seeking multilateral debt relief and restructuring of both domestic and external debt.
