Pakistan, IMF discuss impact of tensions in Middle East on energy prices, inflation

ISLAMABAD: Pakistan’s finance minister met a senior International Monetary Fund official on Monday to examine how escalating regional tensions in the Middle East are affecting energy prices and inflation, including plans for delivering targeted relief to vulnerable households within fiscal limits.

The dispute over U.S.–Iran hostilities has disrupted Gulf energy supply routes and maritime traffic through the Strait of Hormuz, boosting fuel expenses for Pakistan, which depends heavily on Middle Eastern crude imports. Simultaneously, Houthi rebel attacks on Saudi civil infrastructure—including air ports since last week—have added pressure on global oil markets.

In the bilateral dialogue, Finance Minister Muhammad Aurangzeb conversed with IMF Deputy Managing Director Dan Katz on the sidelines of the World Bank Group–IMF Annual Meeting in Bangkok, the Finance Division reported.

“Our talks centered on navigating Middle Eastern turbulence to curb energy costs and inflation while designing focused safety nets that align with fiscal capacity,” the division stated.

“Both parties reaffirmed their commitment to continued collaboration and safeguarding macro‑economic stability against outside shocks.”

The discussion builds on a staff‑level agreement between the IMF and Pakistan reached on October 7, which—pending the Executive Board’s approval—will unlock roughly $1 billion from the Extended Fund Facility and $210 million under the Resilience and Sustainability Facility, raising total disbursements to about $5.7 billion.

Finance Minister Aurangzeb emphasized strengthening investor confidence, recent upgrades in sovereign credit ratings and the government’s renewed access to international capital markets. He reiterated the administration’s pledge to uphold fiscal prudence, tax reform and privatisation efforts.

International partners welcomed the staff‑level accord and commended advancements in fiscal health, foreign‑exchange reserves, inflation dynamics and overall external balance.

The IMF noted in its October 7 assessment that Pakistan has “successfully managed the fallout” from the regional conflict, though higher energy prices and supply snags have dented growth, projecting 3.6 percent GDP expansion for fiscal year 2025‑26. Real inflation fell to roughly 10.3 percent in September after peaking in May, while gross reserves climbed to about $21.5 billion by year‑end.

The Fund also urged Pakistan to gradually terminate its existing fuel subsidy programme because of its cost burden and broad eligibility criteria; any future aid should be limited, time‑bound, applied through established social‑assistance channels, and fit within the FY 2027 budget ceiling.

The IMF cautioned that heightened risk persists, driven chiefly by geopolitical unrest, energy market volatility, tightening global financing conditions and widespread trade disruptions.

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