Karachi: Rising global oil prices, driven by ongoing regional conflicts, are set to impact Pakistan’s economy significantly, with projections indicating heightened inflation and reduced GDP growth over the next several years. The country is also poised to face challenges in managing its fiscal and current account deficits, with potential repercussions for the stock market.
According to JS Global, the economic indicators for Pakistan have been updated in light of the current oil price movements. The report suggests that if the situation persists, inflation in Pakistan could average 9-10% over the next 12 months, with a potential increase to 11% by the fourth quarter of fiscal year 2026. This analysis is based on an assumed oil price of $100 per barrel, but any increase to $120 per barrel could push inflation to 10-11%, necessitating further rate hikes to maintain real rates.
The report also revises GDP growth forecasts significantly. For fiscal year 2027, growth is expected to decrease to 2.5-3.0% from an earlier forecast of 4.0%, while growth for fiscal year 2026 is maintained at 3.5-4.0%. This adjustment aligns with the revised guidelines of the Central Bank and reflects the adverse impact of higher energy prices and inflation on economic growth.
The current account deficit, with administrative measures, is projected to remain below $3.5 billion for fiscal year 2027, equating to 0.8% of GDP. However, any slippage in controlling imports could lead to a deficit exceeding $8 billion, or 1.9% of GDP, straining foreign exchange reserves. The fiscal deficit is anticipated to remain in the range of 4.0-4.5% for both fiscal years 2026 and 2027, largely due to government relief spending and adherence to the International Monetary Fund’s program.
Currency depreciation is expected to average 5-6% in fiscal year 2027, assuming a measured response from the government. However, demand and supply factors could lead to greater depreciation if there are slippages.
The Pakistan stock market has been identified as the third worst performer globally in the March 2026 quarter, recording a negative return of 15%. This outcome is attributed to Pakistan’s heavy dependence on imported oil, which accounts for 85% of its energy needs.
In response to the current situation, JS Global recommends an overweight position in exploration and production companies, fertilizers, and banks, while maintaining a market weight position on pharmaceuticals and consumer goods. A cautious approach is advised for cyclical sectors due to the potential impact of rising oil prices on GDP growth.
The report also highlights concerns over non-oil imports, which are expected to reach the second highest level in history in fiscal year 2026. Government intervention is anticipated to play a crucial role in curbing non-oil imports, with an expected 8% decline in fiscal year 2027.
Remittances are projected to decline by 3.5% in fiscal year 2027, primarily due to a 10% fall from the GCC region, partially offset by a 3% growth from the rest of the world. Exports are also expected to decline by 4% in line with historical trends during similar periods.
The report concludes with a warning that without timely government intervention, the current account deficit could exceed $8 billion, highlighting the need for immediate administrative measures to manage the economic impact of rising oil prices and regional tensions.
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