Pakistan and Middle East economies face 1.3pc decline over Iran conflict, IMF says
The International Monetary Fund (IMF) on Thursday forecast a sharp drop in economic output in Pakistan, the Middle East and North Africa this year due to the US-Israeli-led war against Iran, followed by a rebound to 6.6 per cent growth in 2027, while warning that further energy production disruptions could worsen the outlook. The IMF said the region’s output was expected to contract by 1.3pc as a result of the war’s impact on energy production, shipping, tourism, trade and confidence. Economic output would increase sharply in 2027, but output in those economies would generally stay below pre-war projections. The war’s impact had been substantial, but uneven, with oil-exporting economies directly affected by disruptions to energy production and shipping hit harder, and oil importers proving to be more resilient, the IMF said in its regional outlook released Thursday in Dubai. The IMF said its baseline assumed that the conflict would abate in early 2027 and that trade would gradually normalise during the year, but it said the outlook remained clouded by “exceptionally high uncertainty.” “The main risks derive from further disruption to energy production and trade routes that could drive energy prices higher,” the IMF said in a statement outlining its key messages, noting external financial conditions could also tighten. External financial conditions could also tighten if investors reassess AI-driven productivity gains and interest rates rise further amid heightened concerns about inflation and fiscal positions, it said. Oil importers had proven more resilient, with domestic demand supported by remittances and tourism flows, favourable financial conditions, and prompt policy responses that safeguard consumers from higher commodity prices, the IMF said. Growth in the Caucasus and Central Asia was moderating toward a more sustainable pace, the IMF said, forecasting a 5.2pc rise in economic output in 2026 and 5pc in 2027. The IMF underscored the mantra it delivered during last week’s annual meetings, urging policymakers to prioritise maintaining price stability, while preserving fiscal sustainability, maintaining central bank independence and enacting structural reforms to boost productivity and create jobs.
Economic activity across Pakistan, the Middle East and North Africa is projected to shrink by 1.3pc this year because of the conflict involving the United States, Israel and Iran, according to a regional forecast released by the International Monetary Fund in Dubai.
The financial institution anticipates a recovery to 6.6 per cent growth in 2027, though overall economic levels are projected to remain beneath figures anticipated prior to the conflict. The IMF explained that the hostilities have delivered widespread disruptions to trade, commercial shipping, energy extraction, tourism and broader market confidence across the region.
The consequences of the conflict have been uneven across different countries. Economies reliant on oil exports have faced the heaviest blows due to direct hits on energy facilities and maritime transit lanes. In contrast, oil-importing nations have displayed greater durability, bolstered by steady inflows of remittances, travel revenue, supportive financial terms and official measures designed to shield households from spiking commodity expenses.
The baseline evaluation by the IMF relies on assumptions that fighting will ease in early 2027 and that global commercial flows will gradually recover over the course of that year. Even so, the organisation emphasized that conditions remain clouded by exceptionally high uncertainty. It cautioned that additional damage to energy infrastructure and maritime passages could ignite further price increases for fuel and other essential resources.
Financing conditions could also face additional strain globally. The report noted that international credit environments might tighten if investors reconsider anticipated productivity increases connected to artificial intelligence, or if interest rates climb in response to worries over inflation and government deficits.
In adjacent territories, economic expansion across the Caucasus and Central Asia is decelerating toward a more sustainable pace. The fund projected output growth in those areas at 5.2pc during 2026 before shifting to 5pc in 2027.
Reiterating advice shared at its recent annual meetings, the IMF advised regional authorities to focus on controlling inflation, preserving fiscal stability, protecting the independence of central banks and implementing structural reforms aimed at generating jobs and raising overall productivity.
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DevelopingReported from Dawn (Pakistan).
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