Pakistan’s fragile economy faces turbulence due to Iran war

New Delhi, March 19 (IANS) Pakistan’s fragile economy faces a major risk from the US-Israel war with Iran, as the country is heavily dependent on imported fuel and energy prices have shot up due the conflict which has spread across the Middle East countries.

If the war drags on and energy prices remain elevated, Pakistan could once again find itself facing the kind of macroeconomic stress that has repeatedly disrupted its growth trajectory. Any volatility in global energy prices could hit GDP, slowing an economy that had only recently begun to stabilise after years of turbulence.

"The consequences of war will not be limited to higher oil prices and supply disruptions. Prolonged conflict could also weaken remittance inflows and dampen export demand as international trade slackens,” according to an article in the Karachi-headquartered Dawn newspaper.

The import bill could swell sharply as petroleum purchases rise, while exports — already down by nearly 8 per cent during the July-February period — may weaken further as economic growth slows in key markets. At the same time, any deceleration in Gulf economies, which account for over half of Pakistan’s remittance inflows, could produce a negative external shock. Together, these pressures can widen Pakistan’s balance of payments deficit, the article points out.

The current account deficit could expand significantly if these trends persist. The trajectory bears uncomfortable resemblance to the 2022 crisis, when rising global oil and commodity prices pushed the economy to the brink, forcing Pakistan to seek a bailout from the IMF.

The consequences for the public would be even more severe and last longer as higher global oil prices feed directly into petrol prices and electricity tariffs while also triggering a broader wave of price increases through higher transportation and logistics costs, the article observes.

If crude prices approach the peaks witnessed during the Ukraine war, Pakistan risks sliding back into another high-inflation environment from whose impact low- to middle-income households have yet to recover, the article added.

--IANS

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