Introduction / Executive Summary

Pakistan’s macroeconomic stability is increasingly constrained by structural dependence on imported oil and LNG, concentrated exposure to the Strait of Hormuz, and limited fiscal and external buffers. Recent geopolitical shocks, particularly the Iran conflict, have begun to transmit into domestic macroeconomic conditions primarily through fuel prices and imported inflation channels, with early signs of pressure emerging in external accounts. However, the broader impact on inflation, exchange rate dynamics, and macroeconomic imbalances is likely to materialise with a lag, given existing reserves buffer and short-term policy smoothing.

Operating under an IMF-supported stabilisation framework further limits the use of distortionary subsidies, forcing greater reliance on market-based adjustment mechanisms. Policy response must therefore shift from reactive stabilisation to a resilience-driven framework.

Key reforms include adopting a transparent, rule-based fuel pricing system with full and timely pass-through of international price movements, supported by higher-frequency price adjustments and a quantified energy conservation framework.

Energy security requires accelerated diversification through rooftop solar expansion, grid-scale battery storage, completion of major hydropower projects, and phased exploration of green hydrogen as a long-term substitute for imported fuels.

On the demand side, transport efficiency gains are critical through fuel economy standards, fleet renewal policies, reduced highway speed limits, and accelerated EV adoption backed by nationwide charging infrastructure and fiscal incentives.

External resilience depends on developing Karachi and Port Qasim as transhipment hubs, diversifying trade routes, introducing a “flag of convenience” registry, and establishing a state-backed insurance mechanism to offset rising war-risk premiums.

Industrial and services resilience requires SEZ-based export clustering, enforcement of energy-efficient building codes, and strengthened backup energy systems for IT and BPO exports. Together, these shifts point toward a structural transition from subsidy-led adjustment to a rule-based, efficiency driven, and externally resilient economic framework.