Can Pakistan’s diplomatic triumph help the economy?

For months, Pakistan’s economy has been gripped by a storm, this time not of its own making. The conflict in the Middle East sent oil and gas prices soaring, disrupted supply chains through the Strait of Hormuz, and pushed inflation into double digits. Islamabad’s survival strategy during this regional conflict has been to play the role of honest broker, helping to mediate a ceasefire. That diplomatic achievement is historic.

Regional peace creates economic potential, but potential must be converted into tangible gains through sound policy and execution. The question now is how Pakistan translates its diplomatic moment into durable gains by deepening engagement with economies in the region.

The economic cost of conflict has been felt by every household, yet Pakistan’s macroeconomic fundamentals have held, with the IMF program remaining on track. De-escalation works through multiple channels: lowering shipping and insurance costs, restoring supply chain predictability, and improving investor sentiment. For Pakistan, an oil and gas importer with deep Gulf linkages, these channels matter significantly.

Pakistan has demonstrated it can deliver regional peace, but the peace dividend is not automatic. The next 90 days will determine whether this diplomatic achievement becomes an economic turning point or a missed opportunity

Dr. Vaqar Ahmed

The reopening of the Strait of Hormuz will gradually restore energy supplies, reduce the import bill, ease pressure on the trade account, and contain inflation, all important for the export sector. Remittances and the placement of Pakistani workers abroad will benefit as a stable Gulf region normalizes economic activity in host countries. The cumulative effect on the balance of payments would strengthen foreign exchange reserves and support a more sustainable external position, addressing the key challenges the IMF program was designed to fix.

The next 90 days are critical. Pakistan needs to keep the fiscal year 2026-27 budget targets on track through improved resource mobilization, greater spending efficiency, and targeted social protection to soften inflation’s impact on citizens. De-escalation provides a favorable environment: lower energy prices reduce subsidy pressures, and improved activity broadens the tax base. Every additional rupee of revenue reduces borrowing and the debt service burden, which acts as a future tax on citizens.

The government needs to move decisively on energy sector reform, addressing its vulnerability to imported oil, gas and petroleum products. It should use the US-Iran negotiation period to secure firm commitments on energy pricing and supply predictability, and advance discussions with Qatar and Saudi Arabia on gas and oil respectively. Restoring long-term job prospects for Pakistani workers abroad should also be a priority. Alongside this, Islamabad should convert diplomatic capital into binding investment commitments. The SIFC could advance this agenda further, including by attracting foreign interest in the planned privatization of power generation and distribution companies.

Pakistan should use the improved external environment to refinance debt on better terms, building on its recent foreign bond issuances to access international capital markets for further financing. This would ease the near-term external financing gap and signal growing international confidence in Pakistan’s economic trajectory.

At the same time, stronger engagement with the Pakistani diaspora in the GCC could unlock additional remittances and investment. The Naya Pakistan Certificates scheme already offers sovereign-backed products in Saudi riyal and UAE dirham, removing the long-standing friction of routing funds through dollar or rupee accounts. Expanding awareness of these instruments, and simplifying the investment process for diaspora participation in the Pakistan Stock Exchange, Pakistan Mercantile Exchange and the real estate sector, could meaningfully deepen diaspora engagement. Taxes on local capital markets need rationalization in line with regional peers.

To attract blended and innovative finance from abroad, efficiency gaps in the federal Public Sector Development Programme and provincial Annual Development Programmes should be addressed. Closing these gaps creates a natural entry point for Gulf sovereign wealth funds and institutional investors, who manage vast assets and are actively seeking equity stakes in long-term infrastructure, including renewable energy.

Equally important is accelerating tariff reductions and regulatory easing, particularly to remove barriers to the full realization of the Pakistan-GCC Free Trade Agreement, which offers significant market access for Pakistani micro, small and medium enterprises in textiles, agriculture and livestock.

Yet even as Pakistan seizes the opportunities of de-escalation, it must prepare for the possibility that the peace proves fragile. Should the US-Iran deal reverse, Pakistan should prioritize three buffers. First, continued fiscal discipline, particularly maintaining primary budget surpluses and broadening the tax base. Second, strengthening foreign exchange reserves well above adequate benchmarks, with exchange rate flexibility remaining the primary buffer against shocks. Third, expediting energy sector reform to lower the import intensity of economic growth.

This is a moment that must not be wasted. Pakistan has demonstrated it can deliver regional peace, but the peace dividend is not automatic. It must be actively captured through disciplined fiscal policy, accelerated regulatory and tariff reform, investment promotion, improved internal security, and a sustained effort to strengthen country perception and reduce country risk through political stability, economic resilience, and institutional strength across the provinces. The next 90 days will determine whether this diplomatic achievement becomes an economic turning point or a missed opportunity. The window is open, but it will not remain so indefinitely.

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Dr. Vaqar Ahmed is an economist and former senior civil servant who has advised governments across Asia and the Middle East on fiscal policy, trade reform, and investment strategy.