“The main risks derive from further disruption to energy production and trade routes that could drive energy prices higher,” the International Monetary Fund warned on Thursday as it released its regional economic outlook in Dubai.
That stark assessment sets the stage for a bruising economic contraction across Pakistan, the Middle East, and North Africa. Driven directly by the US-Israeli-led war against Iran, regional output is projected to shrink by 1.3 percent this year, according to financial data reported by both dawn.com and geo.tv.
Oil Exporters Suffer More than Resilient Importing Nations
The conflict has wreaked havoc across critical economic lifelines, including energy production, maritime shipping, tourism, and cross-border trade. However, the damage remains sharply uneven. Oil-exporting economies directly grappling with shattered infrastructure and crippled shipping lanes have absorbed the heaviest blows. Meanwhile, oil-importing nations have demonstrated a surprising degree of resilience.
Domestic demand in importing countries has stayed afloat thanks to steady remittance inflows and tourism, bolstered by favorable financial conditions.
The IMF forecasts a 5.2pc rise in economic output in the Caucasus and Central Asia this year and 5pc in 2027.
The International Monetary Fund (IMF) forecasts a 1.3% economic contraction across the Middle East, North Africa and Pakistan in 2026, citing the impact of the war involving Iran on energy production, shipping, tourism, trade and confidence.The IMF expects the region’s economy… pic.twitter.com/eijHdmPAmq
The 2027 Rebound and the Shadow of Uncertainty
Under this scenario, output across Pakistan and the broader Middle East and North Africa is expected to snap back with a sharp 6.6 percent growth rate.
Even with that anticipated surge, total economic output will generally linger below pre-war projections. The entire outlook remains clouded by exceptionally high uncertainty.
External financial conditions could tighten further if global investors reassess artificial intelligence-driven productivity gains. Rising interest rates, fueled by persistent anxieties over inflation and strained fiscal positions, pose additional downside risks.
To weather the storm, the IMF reiterated the core policy prescription it delivered during its annual meetings last week. Policymakers must prioritize price stability, safeguard fiscal sustainability, defend central bank independence, and aggressively enact structural reforms to generate jobs and boost productivity.
