Pakistan has been identified as the Asia-Pacific economy most vulnerable to macro-financial stress if conflict in the Middle East continues for an extended period, according to a new assessment by S&P Global Market Intelligence.
The report warns that Pakistan’s economic outlook remains highly sensitive to geopolitical instability due to its heavy reliance on imported energy from Gulf countries, strong dependence on remittances originating in the Gulf Cooperation Council region, significant external financing requirements, and limited fiscal space to absorb external shocks.
Under a prolonged conflict scenario, Pakistan’s real GDP growth is projected to slow to around 3.2% by fiscal year 2027, with risks skewed toward weaker performance. Higher global oil prices are expected to widen external imbalances, place renewed pressure on the currency, and slow progress made on stabilizing inflation and the current account.
The assessment notes that rising energy costs and disrupted trade routes could weigh on manufacturing output and export performance by increasing the cost of imported industrial inputs. Supply chain disruptions may also affect fertilizer availability, raising concerns for agricultural productivity, farm incomes, and future crop yields.
Economic spillover effects are expected to extend beyond industry and agriculture. Elevated fuel and transport costs could reduce household purchasing power, dampen private consumption, and slow activity across services sectors such as retail and transportation.
Pakistan’s external financing position remains another major vulnerability. Although foreign exchange buffers have improved recently due to deposits from Gulf partners and continued multilateral support, refinancing risks remain high. The country faces substantial repayment obligations, with gross external financing needs estimated to average roughly $24 billion annually between 2026 and 2030.
According to the analysis, Pakistan’s improving but still fragile economic buffers mean policymakers may face increasingly difficult trade-offs between maintaining macroeconomic stability, supporting growth, and continuing fiscal consolidation under ongoing IMF-supported reform programs.
Overall, the report concludes that sustained geopolitical tension in the Middle East could quickly reverse recent stabilization gains and expose Pakistan to stronger inflation pressures, external financing strain, and slower economic recovery.
