Pakistan has been identified as the most vulnerable economy in the Asia-Pacific region to macro-financial stress under a prolonged Middle East conflict scenario, according to the latest assessment by S&P Global Market Intelligence.
The report projects Pakistan’s real GDP growth to slow to 3.2% in fiscal year 2027, with risks heavily tilted to the downside due to the ongoing war in the Middle East and its economic spillover effects.
The assessment highlights Pakistan’s heavy reliance on Gulf crude oil imports, strong dependence on workers’ remittances from Gulf Cooperation Council (GCC) countries, large external financing requirements, and limited fiscal space as key vulnerabilities amplifying exposure to regional instability.
According to the report, Pakistan is likely to experience the sharpest economic impact among major Asia-Pacific economies if geopolitical tensions persist, primarily because of its dependence on imported energy and industrial inputs from the Middle East, alongside still-fragile external and fiscal buffers.
Higher global energy prices are expected to reverse recent current account improvements, intensify pressure on the Pakistani rupee, and keep inflation elevated.
While earlier policy responses helped cushion initial supply shocks, policymakers are now expected to face increasingly difficult trade-offs between maintaining macroeconomic stability, supporting economic growth, and continuing fiscal consolidation under existing International Monetary Fund programs without additional bilateral or multilateral financing support.
Sector-wise, rising fuel costs, supply chain disruptions, and trade route uncertainty are projected to weigh on manufacturing output and export performance while pushing up imported input inflation.
The report also warns of potential fertilizer shortages and slower remittance growth, both of which could directly affect agricultural incomes and crop yields.
Second-round inflationary effects from higher energy prices are expected to squeeze household consumption and spill into the services sector, with transport and retail industries particularly exposed.
Pakistan’s external financing outlook remains challenging despite some near-term improvement in reserves supported by a fresh Saudi deposit and expected rollovers of existing facilities. However, refinancing risks remain elevated.
A recent $3.5 billion repayment to the UAE highlights the scale of upcoming debt obligations, with gross external financing needs projected to average around $24 billion annually between 2026 and 2030.
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