The State Bank of Pakistan has said in its latest half-yearly economic report that if the war in the Middle East is prolonged, Pakistan’s economic recovery may face serious risks.
According to the central bank, although the economy saw stability in the first half of the fiscal year 2026, global uncertainty and rising tensions in the region may affect future economic performance.
The report says that rising global crude oil prices may increase inflationary pressure in Pakistan, while supply chain disruptions are also likely to have a negative impact on industrial activities, imports and exports.
According to the State Bank, the economic growth rate in FY26 is likely to remain near the lower end of the previously given estimate, while the current account deficit is expected to be between 0% and 1% of GDP.
The central bank said in its report that the improvement in the industrial sector, the recovery of the services sector and the continuous increase in remittances supported the economy. However, a significant decline in rice exports affected overall export earnings.
The report further said that due to fiscal discipline and reduction in interest payments during the first half, the government achieved a fiscal surplus after two decades.
The State Bank also termed climate change a major economic threat to Pakistan, saying that Pakistan is among the countries in the world that are most affected by climate change, although its share in global carbon emissions is very small.
The central bank stressed that Pakistan needs urgent reforms in investment, exports, the tax net and the environmental sector for sustainable development.