Lahore: Pakistan's economy is grappling with significant challenges due to a sustained global energy price shock, which has led to slowed economic growth, rising inflation, and increased poverty, as detailed in a recent report by the Lahore School of Economics. The country's reliance on oil imports and elevated global crude prices have exacerbated its economic woes, with independent economists projecting a GDP growth rate well below government targets.

According to Lahore School of Economics' Modelling Lab report, authored by Dr. Moazam Mahmood, Dr. Azam Amjad Chaudhry, and their team, the ongoing energy crisis has severely impacted Pakistan's macroeconomic indicators. The nation, which imports approximately 500,000 barrels of oil daily, has faced import costs rising by nearly $1 billion due to oil prices remaining $25-30 per barrel above long-term averages. This situation has widened external imbalances, as Pakistan's monthly exports average $3.5 billion against imports of nearly $7 billion, pushing the current account back into deficit.

The report underscores the urgent need for Pakistan to reduce its dependence on imported energy by enhancing domestic and renewable energy sources to achieve sustainable growth. Despite the challenges posed by the energy shock, the report notes some positive developments, including recovery in agriculture and growth in large-scale manufacturing and services sectors.

Inflation remains a critical concern, with average inflation for FY2025-26 estimated at 9%, driven by significant increases in energy prices and domestic taxation. The report highlights that inflationary pressures have been mitigated to some extent by the government's success in stabilizing the exchange rate, which has helped reduce severe inflation driven by previous currency depreciations.

A concerning finding in the report is the rise in extreme caloric poverty, which has surged from 16.5% in FY2018-19 to 21.1% in FY2024-25. This increase is attributed to slower economic growth and high inflation. The report concludes that while stabilizing inflation is a notable achievement, Pakistan's primary economic challenge remains restoring sustained GDP growth to significantly reduce poverty and enhance household welfare.