LAHORE: Pakistan's economy is under significant pressure from a global energy shock, which has slowed growth, increased inflation, and strained the country's external accounts. According to a quarterly report from the Modelling Lab of the Innovation and Technology Centre at the Lahore School of Economics, the fourth quarter of FY 2025-26 has been particularly challenging, with oil prices exceeding their long-term trend by USD 25 to USD 30 per barrel over the past three months.
The report, authored by leading economists including Dr. Moazam Mahmood and Dr. Azam Amjad Chaudhry, highlights that Pakistan's GDP growth is now expected to be 3.1 percent, lower than the government's projection of 3.7 percent. The International Monetary Fund and the Asian Development Bank had previously estimated growth at 3.6 percent and 3.5 percent, respectively. However, these figures preceded the full impact of the energy shock. The country's oil import bill has increased by an estimated USD 1 billion due to elevated prices, with potential growth dipping further to 2.8 percent once additional data is factored in.
The report also points to a widening current account deficit, with exports averaging USD 3.5 billion per month against imports of approximately USD 7 billion. In April alone, import expenditure surged to USD 7.6 billion. Despite significant remittances, structural pressures within the economy remain unmitigated. Analysts emphasize the urgent need for energy substitution to ensure sustainable economic growth.
While challenges persist, there are areas of recovery. The agricultural sector has improved following the reinstatement of a support price for wheat in 2026, and large-scale manufacturing, particularly in the automotive industry, has shown growth after previous declines. Still, analysts caution that the revival of a single sector does not guarantee broader economic recovery.
Inflation has also risen sharply, with projections for FY 2025-26 at approximately 9 percent, driven largely by commodity prices. Energy prices have surged, with consumer costs for petrol, kerosene, diesel, electricity, coal, and natural gas all seeing substantial increases. Government taxation has further exacerbated inflationary pressures.
Despite these economic hurdles, the report acknowledges the government's success in stabilizing the currency and controlling inflation, a significant achievement in the face of global energy price pressures. However, poverty remains a critical issue, with extreme caloric poverty rising significantly over recent years due to slowing GDP growth and currency depreciation.
The report concludes that while stabilizing inflation is crucial, reviving GDP growth to reduce poverty remains a primary objective for Pakistan's economic policy.