Pakistan’s external sector outlook remains manageable despite heightened geopolitical tensions in the Middle East, according to a report by J.S. Global Capital Limited.
The brokerage said that although the ongoing regional conflict has created uncertainty in the global environment, Pakistan’s current account deficit (CAD) is still expected to remain within the previously projected range of 0% to 1% of GDP in FY26.
The report added that the State Bank of Pakistan (SBP) remains confident that timely realization of planned official inflows will help the country achieve its targeted foreign exchange reserves of $18 billion by June.
Fuel price hike adds to inflationary pressures
To avert potential supply shortages and reflect the surge in international oil prices, the government last week increased petrol and diesel prices by PKR 55 per liter and shifted the fuel pricing mechanism from a fortnightly to a weekly revision cycle.
As a result, the Sensitive Price Index (SPI) for the week ending March 11 rose 1.89%, primarily driven by higher prices of petrol, diesel and LPG.
However, on Friday, Prime Minister Shehbaz Sharif announced that petrol prices would remain unchanged for the coming week to provide temporary relief to consumers despite elevated global oil prices.
Analysts said the move may provide short-term relief but warned that the measure is unlikely to be sustainable if global oil prices, along with shipping and insurance costs, remain elevated.
Monetary policy in focus
The next monetary policy announcement by the State Bank of Pakistan, scheduled for April 27, is expected to be a key event for the equity market.
According to J.S. Global’s report, market expectations are building that the central bank may opt for a 50-100 basis point increase in the policy rate, which currently stands at 10.5%, to anchor inflation expectations and support exchange rate stability.
The outlook is consistent with guidance from the International Monetary Fund during its ongoing review of Pakistan’s Extended Fund Facility (EFF) program, which emphasized the need for sufficiently tight monetary policy to keep inflation within targeted levels.
A rate hike could place pressure on cyclical sectors such as cement, automobiles and construction, though analysts say maintaining Pakistani rupee stability without aggressive tightening would represent a significant policy success.
Oil price surge raises macro risks
Pakistan’s economy remains particularly vulnerable to fluctuations in global oil prices due to its status as a net energy importer.
According to J.S. Global estimates, a $10 per barrel increase in oil prices sustained for one quarter would raise Pakistan’s import bill by roughly $400 million and add 0.5-0.6 percentage points to domestic inflation.
Average consumer inflation during the first eight months of FY26 stands at 5.46%, with second-round effects from higher energy prices potentially adding further pressure.
A sustained $20-30 per barrel spike, similar to the recent surge, could increase the import bill by $0.8 billion to $1.2 billion in a single quarter, intensifying pressure on the country’s external account.
With crude oil prices crossing $100 per barrel, analysts warn that near-term macroeconomic risks remain elevated.
It is also notable that Pakistan’s crude import pricing is primarily linked to the Dubai crude benchmark rather than Brent. Under Pakistan’s regulated pricing mechanism based on Platts benchmarks for refined products, domestic fuel prices are calculated using the average international product price during the pricing period.
Currently, international refined product prices are estimated at around $122 per barrel for motor spirit (petrol) and about $165 per barrel for diesel, the report said.
Comments
See what people are discussing