The International Monetary Fund (IMF), in its latest report, has warned of rising inflationary pressures in Pakistan amid the Middle East conflict, saying the country may need tighter monetary policy if the regional crisis persists and price risks intensify.
“In MENAP oil importers, inflationary pressures have risen most sharply in Egypt and Pakistan (to 14.5% and 11.1% year over year, respectively, in August), reflecting higher food and energy-related prices,” the Fund said in its latest report titled October 2026 Regional Economic Outlook: Middle East and Central Asia, Steering Through Uncertainty: Strengthening Resilience in Challenging Times, highlighting the vulnerability of energy-importing economies to disruptions in regional supply and trade.
“Countries should stand ready to tighten monetary policy, particularly where inflation is already above target, and the policy stance appears accommodative, with ex-ante policy rates below estimated neutral levels, a combination most evident in the Kyrgyz Republic and Pakistan,” said the IMF.
The report also noted that Pakistan was the only country with a flexible exchange rate in the MENAP region to raise interest rates after the conflict began, underscoring the differing monetary policy responses across the region.
Over the medium term, the IMF warned that external position could weaken in Pakistan “as imports rise and remittances moderate”.
The report noted that economic activity in other MENAP economies has remained resilient so far in 2026.
“In the first half of 2026, GDP growth in Egypt, Jordan, Morocco, Pakistan, and Tunisia remained broadly in line with the second half of 2025. High-frequency indicators, including industrial production and purchasing managers’ indices, have generally remained resilient or point to only modest contractions so far in 2026, while unemployment rates declined in the second quarter of 2026,” it said.
It added that remittances and tourism inflows have remained robust. “So far in 2026, net remittances as a share of GDP have exceeded levels recorded during the same period last year in Egypt, while remaining broadly stable in Morocco, Pakistan and Tunisia,” the Fund said.
However, the IMF forecasted a sharp drop in economic output in the MENAP this year due to the US-Israeli-led war against Iran, followed by a rebound to 6.6% growth in 2027, while warning that further energy production disruptions could worsen the outlook.
The Fund said the region’s output was expected to contract by 1.3% 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 IMF warned that a prolonged conflict could intensify inflationary pressures and weaken economic activity. In an adverse scenario in which hostilities continue through the second quarter of 2027, oil prices could average about $130 per barrel in 2027, roughly 45% above the report’s baseline assumption.
“In this scenario, directly affected MENAP and CCA oil exporters would bear the brunt of the impact: real GDP falls by an average of about 3.8% while inflation rises about 1¼ percentage points above baseline in 2027,” it said.