IMF Warns Pakistan Faces Major Economic Risk From Gulf Crisis After $1.1bn Tranche Release

The International Monetary Fund has warned that Pakistan faces serious economic risks due to its strong dependence on Gulf economies.

The warning came after the IMF approved a $1.1 billion tranche for Pakistan under its ongoing support programme.

Heavy Dependence on GCC Economies

In its latest staff report, the IMF identified the Gulf Cooperation Council region as Pakistan’s biggest external vulnerability.

According to the report, around 81 percent of Pakistan’s fuel imports come from GCC countries.

Moreover, nearly 55 percent of Pakistan’s remittances also originate from Gulf economies. These remittances equal almost nine percent of the country’s GDP.

The IMF warned that economic disruption in Gulf countries or the return of migrant workers could seriously affect Pakistan’s economy.

Iran Conflict Impacts Economic Outlook

The IMF also included the impact of the Iran conflict in Pakistan’s economic projections.

As a result, the lender reduced Pakistan’s GDP growth forecast by 0.2 percentage points for FY26.

In addition, it lowered the FY27 growth forecast by 0.6 percentage points.

Meanwhile, the IMF expects inflation to rise by around half a percentage point this year and by 1.5 percentage points in FY27.

Revenue Targets and Energy Concerns

The report stated that Pakistan met most programme targets through spending cuts rather than stronger tax collection.

Furthermore, the Federal Board of Revenue missed its end-December tax target by 0.3 percent of GDP.

The IMF also highlighted energy pricing reforms as an important condition for completing the review.

The government had delayed fuel price increases after the war began and provided temporary support to oil marketing companies.

Islamic Banking Transition Included

The IMF also addressed Pakistan’s transition toward an Islamic banking system.

According to the report, the government must provide a clear roadmap for moving toward a constitutionally mandated interest-free economy.

The lender added that authorities should also explain how banks will manage existing conventional financial liabilities.