KARACHI: Pakistan’s finance ministry warned on Tuesday rising global oil prices and potential supply disruptions linked to the Iran war could push up industrial input costs, even as the economy shows signs of stabilization.
The warning comes as tensions stemming from the ongoing war in the Middle East and disruptions around the Strait of Hormuz, a critical global oil transit route, have driven up energy prices and heightened risks for import-dependent economies like Pakistan.
“Rising global oil prices and potential supply chain disruptions may exert pressure on industrial input costs,” the finance ministry said in its Economic Outlook for March.
The report said Pakistan’s economy showed “encouraging progress” during the first eight months of the fiscal year, with the current account posting its largest surplus in February, supported by higher remittances and lower imports.
Foreign exchange reserves rose to a four-year high, helped by increased central bank holdings, while IT exports maintained growth momentum, strengthening external sector performance.
Large-scale manufacturing also posted double-digit growth in January, signaling a pickup in industrial activity.
However, the ministry cautioned that geopolitical risks could weigh on the outlook, particularly through higher energy costs and supply chain disruptions.
Inflation rose to 7.0 percent year-on-year in February, up from 5.8 percent in the previous month, driven largely by increases in housing, utilities, education and health costs. The government expects inflation to remain in the 7.5 percent-8.5 percent range in March.
Despite these pressures, the report said the government was taking steps to mitigate risks, including maintaining adequate petroleum reserves, managing energy demand and adhering to fiscal discipline.
Pakistan has taken precautionary measures in recent weeks to secure fuel supplies and limit demand as global markets react to escalating tensions in the Middle East, which threaten shipping flows through the Strait of Hormuz.
The ministry said strong remittance inflows, particularly ahead of Eid, along with continued growth in IT exports, were expected to support foreign exchange earnings, helping the country manage its external account.
“Notwithstanding the downside risks amid global uncertainties, the latest indicators suggest that the economy is better positioned to absorb external shocks and maintain overall resilience in the coming months,” the report said.
