• Analysts say inflation may exceed 11pc, CAD could rise above $8bn
• GDP expansion may slow to 2.5-3.0pc in FY27

KARACHI: Pakistan’s inflation is likely to remain in double digits if the surge in oil prices persists amid the unresolved Middle East conflict, analysts warned, adding that rising costs and disrupted imports are already straining the country’s external position.

Topline Securities Ltd released its latest “Pakistan Strategy” report on Saturday, analysing the impact of soaring oil prices amid regional tensions and their implications for Pakistan’s economy and stock market. The brokerage said the situation is prolonged and evolving, with outcomes hinging on whether the conflict ends or a peaceful resolution is reached.

The report projected that if current conditions persist, Pakistan’s inflation over the next 12 months could average 9-10 per cent, with fourth-quarter FY26 inflation surpassing 11pc. These forecasts are based on an oil price of $100 per barrel, with every $10 increase adding roughly 50 basis points to inflation estimates. At $120 per barrel, average annual inflation could reach 10-11pc, prompting the State Bank of Pakistan to consider further policy rate hikes to protect real returns.

Rising energy costs and inflation are expected to weigh heavily on economic growth. Topline Securities lowered its GDP forecast for FY27 to 2.5-3.0pc, down from an earlier 4.0pc, reflecting a 100-120bps impact. FY26 growth is maintained at 3.5-4.0pc, in line with the central bank’s revised guidelines.

Industrial growth could fall to 1pc from 3.9pc, agriculture to 4.0pc from 4.4pc, and services to 2.8pc from 4.0pc if the conflict continues. By contrast, if tensions ease by FY27, growth could stabilise around 3.5-4.0pc.

Fiscal outlook

Analysts at Topline Securities expect the current account deficit (CAD) for FY27 to remain below $3.5 billion (0.8pc of GDP) with administrative measures. However, slippages or lax import controls could push it above $8bn (1.9pc of GDP), straining foreign exchange reserves.

The consolidated fiscal deficit for FY26 is expected to remain in the range of 4.0-4.5pc of GDP due to relief spending, slightly above the IMF target of 4.0pc. A similar range is anticipated for FY27.

A measured government response could keep FY27 currency depreciation around 5-6pc. Without intervention, supply-demand pressures could accelerate losses.

The Pakistan Stock Exchange (PSX) has suffered amid regional turmoil and rising oil prices, ranking the third worst performer globally in the January-March quarter with a 15pc decline. India and Indonesia posted larger falls of 19.4 and 19.0pc, respectively. Heavy dependence on imported energy, Pakistan imports 85pc of its requirements, is cited as a key factor. Petroleum imports are projected at $15bn for FY26, roughly 22pc of total imports.

Topline Securities recommended remaining overweight in exploration and production (E&P) firms, fertilisers, and banks, while adopting a market-weight stance on pharmaceuticals and consumer goods. Caution is advised in cyclical sectors due to potential GDP slowdown.

Imports/remittances

Non-oil imports, expected to reach $48-50bn in FY26, could threaten macroeconomic reforms if unrestrained. Historically, administrative measures have played a key role in curbing imports during crises, including FY09, FY19, FY20, and FY23. Topline Securities forecasts an 8pc fall in non-oil imports for FY27 with government intervention, alongside a 12pc decline in petroleum product consumption due to higher prices.

Remittances are projected to fall 3.5pc, reflecting a 10pc decline from the Gulf Cooperation Council region and modest growth elsewhere. Exports are expected to drop 4pc. With these assumptions, the FY27 current account deficit is estimated at $3.5bn (0.8pc of GDP).

Policy rate

The SBP raised its policy rate by 100bps to 11.5pc on April 27. If oil prices remain at $120 per barrel, further rate hikes may be necessary. The rupee-dollar exchange rate is forecast to close FY26 at Rs280-282 and FY27 at Rs294-298 (average Rs289). Persistent conflict could drive depreciation above the historic 5-6pc average.

The benchmark KSE-100 index is down 7pc year-to-date and 14pc from its January 2026 peak, with geopolitical tensions, rising oil prices, and profit-taking contributing to declines. Key sectors poised to benefit include E&Ps, fertilisers, and banks.

Domestic E&P companies could ramp up production by 500-900 mmcfd over two years, partly offsetting reliance on imported RLNG. Fertiliser companies may benefit from rising international urea prices and restored domestic margins. Banks are expected to see improved spreads due to higher interest rates.

Published in Dawn, May 3rd, 2026