ISLAMABAD: Pakistan’s foreign exchange reserves are likely to come under mounting pressure as the ongoing Middle East crisis threatens to sharply widen the current account deficit to 5 percent of GDP against the 2 percent target agreed with the International Monetary Fund.
This was the consensus among economic analysts while talking to Business Recorder, who added that the surge in global oil price is expected to significantly inflate the country’s import bill, accelerating reserve drawdowns and intensifying external sector vulnerabilities.
Former finance minister Dr Hafeez Pasha said the impact on reserves would be unavoidable, as Pakistan’s monthly petroleum import bill — currently around USD 1.5 billion — is poised to rise by as much as USD 1 billion.
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“A nearly 70 percent increase in petroleum prices has already been recorded. This could add roughly USD 3 billion to imports in the remaining quarter of the fiscal year, pushing the current account balance into deficit,” he said.
Former Finance Ministry Adviser Dr Ashfaque Hassan Khan emphasised that while supply disruptions are not a concern, persistently high prices pose a serious threat to external stability. “The longer the crisis continues, the greater the strain on foreign exchange reserves,” he said, urging the government to curb demand and rationalize imports.
He proposed “aggressive yet selective import compression policy,” including three-day a week closure of petrol pumps, fuel rationing based on engine size. He said that some countries have already started quantitative restriction on petroleum products and Pakistan should follow suit.
He also recommended restrictions on non-essential imports such as cars and mobile phones—both significant consumers of foreign exchange.
Khan added that financial support rollovers from Saudi Arabia and the UAE are likely to remain intact, especially at a time when Pakistan is playing key mediation role in the ongoing war, providing some cushion to reserves.
Dr Khaqan Najeeb economist and former advisor Ministry of Finance said a prolonged Middle East crisis would affect Pakistan’s foreign exchange reserves through a non-linear shock-interaction channel, where oil, remittances, and capital flows reinforce each other.
With State Bank of Pakistan reserves at USD 16.3 billion, the immediate pressure comes from a higher oil import bill and a widening trade deficit (about USD 3 billion monthly – USD 25 billion July–February), accelerating reserve drawdown.
Under a baseline scenario (elevated oil, stable remittances), pressures remain manageable, though the current account deteriorates modestly. However, a 5 percent decline in remittances (USD 2 billion) would significantly tighten FX inflows, increasing exchange-rate pressure and reserve loss. A 10 percent decline (USD 4 billion), combined with elevated oil, could widen the current account by USD 2.5–3.0 billion, materially weakening external liquidity.
The key point is that reserves are not driven by oil alone but by its interaction with remittances and financing conditions — if remittances hold, pressures stay contained; if they weaken alongside high oil, reserve depletion accelerates non-linearly, increasing external vulnerability, Dr Najeeb added.
Copyright Business Recorder, 2026
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