Pakistan faces the highest macro-financial stress risk among major Asia-Pacific economies if conflict in the Middle East persists, according to a new assessment by SandP Global Market Intelligence, highlighting how deeply the country's economic stability remains tied to external shocks, imported energy and unfinished structural reforms.
The report projects Pakistan's real GDP growth to slow to 3.2% in fiscal year 2027 and warns that risks remain firmly tilted to the downside. The chief concern is the country's extensive dependence on Gulf energy supplies, remittances from Gulf Cooperation Council countries, large external financing requirements and limited fiscal room to absorb prolonged regional instability.
According to Ahmad Mobeen, Principal Economist at SandP Global Market Intelligence, Pakistan is likely to experience the most acute effects of a prolonged Middle East conflict among the major economies assessed in the Asia-Pacific region.
He noted that the country's reliance on imported energy and industrial inputs from the region, coupled with improving but still limited external and fiscal buffers, leaves it particularly vulnerable. Higher energy costs, he argued, could reverse recent gains in the current account, intensify pressure on the rupee and keep inflation elevated.
The assessment warns that policymakers may soon face increasingly difficult trade-offs between maintaining stability, supporting economic activity and continuing fiscal consolidation under existing International Monetary Fund programmes, particularly if additional bilateral and multilateral financing does not materialise.
Sectoral consequences could also be significant. Higher fuel prices, supply-chain disruptions and interruptions to trade routes are expected to weigh on manufacturing and exports while increasing imported input costs. The report also identifies risks of fertiliser shortages and slower remittance growth, both of which could directly affect agricultural incomes and crop yields.
Second-round effects may extend beyond industry. Rising energy costs are projected to reduce household consumption and spill into the services sector, with transport and retail among the most exposed segments.
External financing pressures remain another source of concern. Although near-term buffers have improved due to a new Saudi deposit, expected rollovers of existing facilities and continued access to IMF-linked financing, refinancing risks remain substantial.
The report points to Pakistan's recent repayment of $3.5 billion to the United Arab Emirates as an indication of the scale of future obligations. Gross external financing requirements are projected to average roughly $24 billion annually between 2026 and 2030.
These warnings reinforce a broader debate about the structure of Pakistan's economy and the persistence of recurring crises.
One analysis argues that Pakistan's economic difficulties are not recent but stem from decades of structural weaknesses, including weak governance, inconsistent policymaking, low exports, narrow tax collection and dependence on foreign borrowing.
Although the economy has expanded significantly in size, the pattern of growth has remained uneven. Gross domestic product increased from around $100 billion in 2000 to between $340 billion and $380 billion by 2025, while per capita income rose from below $600 to roughly $1,500-$1,700. Yet inflation and currency depreciation have eroded much of the benefit for ordinary households.
The comparison over time reveals a recurring cycle. Periods of stability have often been followed by renewed pressure. Inflation, which generally remained in single digits in the early 2000s, surged to nearly 40% in 2023 before easing to around 4-7% in 2025-26.
Public debt has also increased. While it stood at around 60% of GDP in the early 2000s, it has risen to approximately 70-75% today despite repeated IMF programmes and fiscal adjustments. Debt servicing has consequently become one of the largest components of federal expenditure.
The external sector exhibits a similar imbalance. Exports have grown from around $10-12 billion in the early 2000s to roughly $30-32 billion today. Imports, however, have risen much faster, reaching around $55-60 billion and keeping the trade deficit structurally wide.
The State Bank of Pakistan has acknowledged many of these underlying weaknesses despite reporting an improvement in macroeconomic conditions.
In its 'State of Pakistan's Economy' report for the first half of FY26, the central bank said real GDP grew by 3.8%, compared with 1.9% during the same period a year earlier. Growth was broad-based, led by industry, followed by services and agriculture. The report attributes the improvement to prudent monetary and fiscal policies, ongoing structural reforms, favourable commodity prices and support from the IMF programme.
Inflation also moderated, with average national consumer-price inflation easing to 5.2% in the first half of FY26. Fiscal consolidation resulted in a budget surplus during the period, the first since FY02, largely due to a sharp decline in interest payments.
Industrial activity strengthened, with large-scale manufacturing expanding by 4.8% after three years of contraction. Textiles, automobiles and petroleum products were among the main contributors to the recovery.
Yet the central bank's assessment is ultimately cautionary. It argues that sustainable high growth will require deep-rooted reforms to address persistent weaknesses including low savings, insufficient investment, weak competitiveness, limited export diversification, subdued foreign direct investment and a low tax-to-GDP ratio.
The report notes that Pakistan's export base remains concentrated in a narrow range of products and markets, with limited technological upgrading. Such constraints continue to undermine resilience and long-term growth prospects. Beyond macroeconomic indicators lies a wider question of credibility.
Another analysis argues that Pakistan is gaining diplomatic relevance as a constructive actor amid regional tensions, creating economic opportunities through external engagement and financial support from international partners. However, it warns that diplomatic goodwill cannot substitute for economic strength. While external support can create temporary room for manoeuvre, it does not eliminate the need for domestic reform.
The article describes Pakistan's model as one built largely on 'rented resilience' - relying on remittances, foreign deposits and geopolitical support - rather than 'built resilience' based on exports, productivity and institutional strength.
According to this view, the country's challenge is not attracting interest from abroad but converting that interest into lasting confidence. Investors continue to face regulatory inconsistency, tax complexity, unreliable energy supplies and institutional fragmentation.
The argument concludes that Pakistan's future will depend less on diplomatic positioning and more on its ability to strengthen domestic credibility through reforms, investment facilitation, export-oriented industrial development, reliable energy provision and stronger institutions.
Taken together, the assessments paint a picture of an economy that has regained a measure of stability but remains highly exposed to external shocks and internal weaknesses. Growth has returned, inflation has eased and fiscal conditions have improved. Yet the underlying vulnerabilities that have shaped Pakistan's economic history remain largely unresolved.
For policymakers, the challenge is no longer merely to manage the next crisis. It is to break a cycle in which each period of recovery is followed by renewed strain. The country's ability to withstand a prolonged Middle East conflict may ultimately depend on whether it can transform temporary stability into lasting economic resilience.