Situationer: How US-Iran peace can help steady Pakistan’s ship

A tentative agreement between the US and Iran to end regional conflict could significantly stabilize Pakistan's economy, which has been sliding into macroeconomic decline. The new budget offers a glimmer of hope, contingent on this renewed geopolitical stability. However, the International Monetary Fund projects global growth to slow to 3.1% in 2026 and 3.2% in 2027, a challenging environment for any nation.

Economist Kaiser Bengali warns of dire consequences if the peace deal collapses. Blockades of the Strait of Hormuz and the Red Sea route could halt Saudi Arabia's crude exports, leading to severe fuel shortages in Pakistan. "Even if we are willing to pay Rs1,000 for a litre of petrol, the pumps will be empty, and people will resort to walking or cycling," Bengali stated, illustrating the potential crisis.

Pakistan's Finance Minister Muhammad Aurangzeb has revised the growth rate projection down to 4%, from an earlier 3.7%. The current budget attempts a delicate balancing act, aiming for IMF targets of Rs15 trillion in tax collection, a 2% primary surplus, and a 3.6% fiscal deficit, while providing some relief measures. Remittances have seen a temporary surge as overseas Pakistanis purchase property as a safeguard against potential instability.

Ehsan Malik, former CEO of Unilever Pakistan, cautions that much of the fiscal space relies on provincial surpluses promised to the IMF. Failure to meet these targets could necessitate a mini-budget, likely increasing the burden on taxpayers and raising inflation through higher petroleum levies. Conversely, falling oil prices, driven by increased US and UAE production and confidence in a peace deal, could benefit Pakistan by reducing import costs.

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Even if we are willing to pay Rs1,000 for a litre of petrol, the pumps will be empty, and people will resort to walking or cycling.