ISLAMABAD: Following the release of a $1.1 billion tranche to Pakistan, the International Monetary Fund has identified the country’s deep economic reliance on Gulf Cooperation Council (GCC) states as its most significant external vulnerability.
In its latest staff report, the IMF cautioned that ongoing regional conflict and instability could adversely affect Pakistan’s economic outlook due to its heavy dependence on Gulf economies for energy imports, remittances, and financial flows.
The report highlighted that nearly 81 percent of Pakistan’s fuel imports originate from GCC countries, while around 55 percent of remittances — equivalent to approximately nine percent of GDP — are received from the region.
“The war weighs on the near-term outlook as Pakistan is highly exposed to energy imports and remittances from the Gulf countries as well as to global financial conditions,” the Fund stated.
The IMF further warned that any major disruption in Gulf economies or a large-scale return of overseas Pakistani workers could significantly impact remittance inflows, domestic consumption, and the country’s balance of payments position.
The lender has now formally incorporated the impact of the Iran conflict into Pakistan’s macroeconomic projections. Under its baseline scenario, Pakistan’s GDP growth is projected to slow by 0.2 percentage points in FY2026 and by 0.6 percentage points in FY2027. Inflation is also expected to rise by nearly half a percentage point this fiscal year and by 1.5 percentage points in FY2027.
Reviewing Pakistan’s fiscal performance, the IMF acknowledged that programme targets had largely been achieved but noted that the progress relied more on expenditure controls than sustainable revenue generation.
“The consolidation progress so far has relied primarily on increasing revenue from the formal sector,” the report observed, adding that the Federal Board of Revenue missed its end-December indicative target by 0.3 percent of GDP.
Energy pricing reforms were also identified as a key prior action for completion of the IMF review. The government had temporarily delayed fuel price adjustments after the outbreak of the conflict, effectively extending subsidies to oil marketing companies.
In a significant development, the IMF has also incorporated Pakistan’s court-mandated transition toward an interest-free banking system into its programme framework.
According to the report, the government’s financial sector strategy must include “a detailed roadmap for the transition to a constitutionally mandated ‘riba’-free economy” and clearly define the implementation path for financial institutions, along with mechanisms for addressing existing conventional financial liabilities.
The IMF has set the submission of this strategy as a structural benchmark to be completed by the end of June 2026.
