Pakistan is facing mounting inflationary pressures as the Middle East conflict disrupts food and energy supplies, according to the International Monetary Fund’s latest regional economic outlook. The Fund reported that Pakistan’s year-on-year inflation reached 11.1% in August, placing the country among the most affected oil-importing economies in the Middle East, North Africa, and Pakistan (MENAP) region.
Inflation Pressures Intensify In Pakistan
Rising food and energy prices have pushed inflation higher, highlighting Pakistan’s vulnerability to regional supply disruptions and trade shocks. The IMF identified Pakistan and Egypt, where inflation reached 14.5%, as the most affected oil-importing economies in the region.
The latest figures underline the risk that prolonged geopolitical tensions could further increase domestic prices, particularly if energy and food supply pressures persist.
IMF Calls For Tighter Monetary Policy
The IMF advised countries experiencing inflation above their targets, particularly those with policy rates below estimated neutral levels, to remain prepared to tighten monetary policy if price pressures intensify.
Pakistan and the Kyrgyz Republic were identified as clear examples of economies maintaining an accommodative monetary policy stance that may require adjustment.
The report also noted that Pakistan was the only MENAP country with a flexible exchange rate to raise interest rates after the conflict began, distinguishing its policy response from those of regional peers.
Medium-Term External Risks Mount
The Fund warned that Pakistan’s external position could weaken over the medium term as imports increase and remittance growth moderates. Although remittances have remained broadly stable so far in 2026, a sustained slowdown could put additional pressure on the country’s balance of payments.
Higher import costs, particularly if energy prices remain elevated, could compound existing external financing challenges and make it more difficult to maintain economic stability.
Regional Economic Outlook Remains Uncertain
Economic activity across several MENAP economies remained resilient during the first half of 2026. Growth in Pakistan, Egypt, Jordan, Morocco and Tunisia was broadly in line with the second half of 2025.
Industrial production and purchasing managers’ indices indicated only modest weakness, while unemployment declined in the second quarter.
However, the IMF projected a 1.3% contraction in regional output this year as the US-Israeli-led war against Iran disrupts energy production, shipping, tourism, trade and business confidence. The Fund expects regional growth to rebound to 6.6% in 2027, although output would remain below pre-war projections.
Prolonged Conflict Could Push Oil Prices Higher
The IMF outlined a downside scenario in which hostilities continue through the second quarter of 2027. Under this scenario, oil prices could average approximately $130 per barrel, around 45% above the baseline forecast.
Inflation in affected economies could rise by approximately 1.25 percentage points above the baseline in 2027. Meanwhile, real GDP in directly affected oil-exporting economies could decline by an average of 3.8%.
For Pakistan, a prolonged conflict could intensify inflationary pressures, increase import costs and weaken external financing conditions. The outlook highlights the importance of closely monitoring price developments and maintaining policies capable of responding to further economic shocks.