KARACHI: Pakistan’s Finance Minister Muhammad Aurangzeb this week told a visiting International Monetary Fund (IMF) delegation that volatility in global energy markets poses potential risks for the country’s economic recovery, as oil prices rise sharply amid the ongoing conflict between US, Israel and Iran in the Middle East. 

Oil prices rose sharply on Monday as US and Israeli attacks on Iran, as well as Tehran’s retaliatory strikes around the Gulf sent disruptions through the global energy supply chain. Attacks throughout the region, including on two vessels traveling through the Strait of Hormuz, have restricted countries’ ability to export oil to the rest of the world.

Higher global energy prices could lead to consumers worldwide paying more for petrol and shelling out more for groceries and other goods, at a time when many in Pakistan and around the world are already feeling the impacts of inflation.

Pakistan began formal talks with an IMF delegation on Monday, as Islamabad prepares for the next review of its $7 billion bailout program. The IMF team is in Pakistan to conduct a review under the Extended Fund Facility (EFF) approved in September 2024, a multi-year program aimed at stabilizing the economy after a balance-of-payments crisis, high inflation and dwindling foreign exchange reserves.

“On economic performance, the minister shared that recent indicators point toward gradual recovery, with positive trends in growth and key sectors,” the Finance Division said in a statement on Monday.

“However, he acknowledged emerging global headwinds, including evolving geopolitical developments and volatility in international energy markets, which pose potential risks.”

Aurangzeb informed the IMF mission that Pakistan has constituted a high-level committee to closely monitor the evolving situation and ensure coordinated policy responses.

The finance minister assured the IMF that while economic stabilization efforts were necessary to restore macroeconomic balance, Islamabad is mindful of their social impact and would continue to pursue policies aimed at enhancing social spending to protect the vulnerable. 

Aurangzeb informed the IMF delegation of the government’s reforms regarding the energy and tax sectors. He reiterated the government’s commitment to undertaking key privatization transactions and restructuring initiatives related to state-owned enterprises during the year.

Iva Petrova, who led the IMF mission, shared insights which included her team’s discussions with Pakistani officials in Karachi regarding the loan program reviews, the Finance Division said. Both sides agreed to hold further discussions in the coming days. 

Pakistan entered into the IMF’s program to strengthen its public finances, foreign exchange reserves and restore macroeconomic stability after periods of economic volatility. 

Islamabad has sought to expand economic growth through reforms in key sectors mandated by the IMF, bolstering trade relations with traditional and regional allies in recent months, and taking measures to enhance its exports.