Recent economic outcomes

More than two months have elapsed since the start of the Middle East war and the lack of the movement of ships in the Strait of Hormuz.

A number of negative impacts have become visible. The price of Brent Crude Oil has risen from USD 70 per barrel in February prior to the war to USD 108 by end-April and is now at over USD 101 per barrel. Supplies through exports of key items like LNG, LPG, and fertilizer have been drastically reduced. The rise in transport costs has affected the prices of both imports and domestically-manufactured goods.

The objective of this article is to determine the extent of change in the magnitude of key economic variables like the rate of inflation, level of imports and exports, remittances, tax revenues, etc. in March and April, especially in relation to previous months. However, the PBS (Pakistan Bureau of Statistics) and the SBP (State Bank of Pakistan) have not yet released the statistics of a number of variables for April 2026.

The first variable that is analysed, in terms of the trends in the months of February, March, and April 2026, is the rate of inflation. There is clearly a quantum increase in the rate of inflation. On a year-to-year basis it was 7 percent in February, rising somewhat to 7.3 percent in March and now registering a big increase to the double-digit rate of 10.9 percent in April.

The price of motor fuel in April has risen by over 40 percent, on a year-to-year basis. This combined with the rise in transport service charges of almost 38 percent has implied that the direct impact of rising oil prices has been an increase of almost 2 percentage points in the rate of inflation in April 2026.

Overall, non-food prices have risen by almost 14 percent in April. Fortunately, food prices have increased moderately by 7 percent. Within the former group of items, electricity charges have jumped up by 34 percent, gas charges by 23 percent and liquid hydrocarbons by as much as 63 percent.

The weekly SPI as of the week ending on the 7th of May 2026 is showing an even bigger rate of inflation at 15.2 percent. The rate of inflation in the week ending on the 28th of February 2026 was only 4 percent. Therefore, overall, there has been a marked rise in the rate of inflation since the start of the Middle East war.

We turn next to the recent trends in the current account of the balance of payments of Pakistan. The rise in international prices has also begun to adversely impact on the balance of trade in goods. The month of April saw a quantum jump in imports of goods of over 29 percent, equivalent to USD 1.5 billion. Exports showed marginal growth. Consequently, the balance of trade in April is a deficit is USD 4.1 billion, over 40 percent higher than the deficit in February.

This development is potentially very worrisome. If the targeted annual deficit in the current account was projected earlier at USD 2.4 billion, there is a risk that it could rise to almost USD 7 billion by the end of 2025-26.

The gap may also increase in the current account deficit further due to a fall in home remittances. The SBP has released data up to March 2026. Accordingly, compared to level in February 2026, remittances have fallen by 5 percent. More than half the fall is due to decline in remittances from Saudi Arabia and the UAE. There is the likelihood that there will be an even bigger fall in the flow of home remittances, especially from the UAE, in coming months.

Foreign exchange reserves have shown a drop of over 3 percent from the level of USD 16.4 billion in March to USD 15.8 billion on the 24th of April 2024. Fortunately, the return of time deposits to the UAE has been accompanied by an inflow of deposits from Saudi Arabia.

There are somewhat contrary short-term trends in the Quantum Index of Manufacturing (QIM). On a year-to-year basis, output is up by over 11 percent in March, but on a month-to-month basis it is down by over 5 percent.

Industries, which are directly impacted if the war continues, are currently showing contrasting trends. The POL products industry has achieved a year-to-year growth rate of 3.4 percent in March. This is much smaller than the growth rate achieved over the nine months of July to March of almost 11 percent. Fortunately, this big increase has limited the shortages.

However, there are other industries which are beginning to show declines due particularly to shortage of imported inputs. The fertilizer output has fallen by 8 percent in March, whereas earlier the industry had been showing a decline of only 1 percent. Similarly, cement production is down by almost 7 percent in March, compared to positive growth rate of 9 percent in earlier months.

The industry which continues to show a disappointing performance is textiles. Over the nine-month period of July to March, there has near zero growth in output by this industry. This clearly reveals a lack of success in increasing the exports, which have remained stagnant at close to USD 13.5 billion in the first nine months of 2025-26.

The level of FBR (Federal Board of Revenue) revenues is a key target in the IMF Programme. The annual rate of increase targeted for in 2025-26 is 19 percent. There has been an increase of only 10 percent in the first nine months, implying thereby a shortfall of almost Rs. 700 billion. Fortunately, the growth rate has apparently been higher in April. This probably reflects the rise in c.i.f. prices of imports, leading to higher sales tax and customs duty revenues. The figures of revenues from the Petroleum Levy in March and April have not yet been released.

Overall, there are already some visible negative impacts on the economy due to the Middle East war. The current account deficit in the balance of payments by the end of 2025-26 will be significantly larger than originally projected. This will put pressure on the foreign exchange reserves, even after the forthcoming release of USD 1.2 million by the IMF.

The forthcoming budget and policy actions by the SBP will set the stage for the economy in 2026-27. The original targets for the year in the IMF Programme are now increasingly not applicable. We await the submission of the Staff Report on the Third Review of the Programme to see the projections for the economy in 2026-27.

Copyright Business Recorder, 2026