The near-term outlook for Pakistan remains cautiously optimistic despite emerging geopolitical risks, says the finance ministry’s Economic Update and Outlook released on March 31.
The report, however, warned that rising oil prices pose a long-term risk to the country’s import bill and macroeconomic conditions.
While the government is making strenuous efforts to tackle the current challenges, long-term measures are equally important to more effectively reduce dependence on imported energy.
Acknowledging that uncertainty remains high and a lot will depend on the duration of the current crisis, Dr Manzoor Ahmad, a trade arbitrator at the World Trade Organisation in Geneva, says of the long-term, “There is cautious optimism that changes in Pakistan’s energy mix over the past decade may help cushion the impact, especially for electricity.”
Rising poverty could be reduced more effectively by accelerating construction and planning aimed at water conservation, agriculture development, and flood control
The cautious optimism is based on the actual performance of various energy sectors so far, as well as on what Dr Ahmad suggests: “Pursuing consistent policies and targeted investment.”
Notwithstanding downside risks amid global uncertainties, the latest indicators suggest the economy is better positioned to absorb external shocks and maintain its overall resilience in the coming months, according to the March outlook report.
Pakistan has a considerable pathway, Mr Ahmad wrote in an article in The Express Tribune titled ‘Pakistan’s Energy Crossroads’, that to reduce its dependence on imported energy, “greater reliance on hydropower, nuclear energy, renewables, and domestic coal can meet future demand more securely and enable Pakistan to move away from the recurring cycle of energy-driven economic crisis”.
As an example, hydropower has expanded considerably, with generation increasing from about 32,600 gigawatt-hours (GWh) to nearly 40,000GWh over the past decade. Mr Ahmed further says the potential for further expansion remains considerable; the share of rising domestic coal, particularly Thar, in grid electricity has also grown to over 11 per cent.
However, inflation increased by 1.2pc in March to 7.3pc from February, according to data released by the Pakistan Bureau of Statistics on April 1. A day earlier, the Ministry of Finance had anticipated inflation in the range of 7.5pc to 8.5pc for the same month.
Beyond that, the Social Policy and Development Centre (SPDC) estimates that 43.5pc of Pakistan’s population (close to 105m personnel) is living below the poverty line. The SPDC research paper titled ‘Empirical Evidence of Upsurge in the Poverty Numbers, Pakistan 2025” was released to the media on March 24.
A key issue here is that the government lacks the financial resources to provide the level of relief needed by households to offset rising prices of energy and household essentials due to the cost of living. In this difficult situation, the provinces finally agreed on March 30 to share the burden of the oil subsidy passed on to the local consumers under the National Finance Commission formula.
But more importantly, rising poverty could be reduced more effectively by accelerating construction and planning primarily aimed at water conservation, agriculture development, flood control, food security and mitigation of the impact of drought.
The recent unveiling of the National Drought Action Plan (NDAP), say analysts at Dawn, demonstrates that Pakistan at last recognised drought as a structural challenge rather than an episodic disaster. The NDAP provides a framework to act on that recognition.
In the Kirthar range and the Thar desert, small dams are seen as effective models for water conservation and, by extension, poverty alleviation in their command area. The sub-soil water level, which depleted at an alarming pace from 200ft to 250ft, has now recharged up to 120ft to 150ft where the dams are built, say officials. People and livestock are also getting access to drinking water besides water for the cultivation of crops, vegetables and fodder.
Furthermore, a series of small dams often results in more streamflow being directed from the river than in the case of a large dam. Small dams — conventionally defined as dams approximately 25 meters high — that are properly designed also have some attributes that large dams do not. They can be designed to bypass sediments, reducing the impact on the stream regime. But persistent disturbances to downstream flows and sediments may negatively affect the river ecosystem, reducing the river system’s resilience.
The Punjab government has approved the construction of 17 new small dams across the province in early 2026 to manage a predicted 28pc increase in rainfall.
In early 2025, the Khyber Pakhtunkhwa government was actively constructing 36 small dams to enhance water storage, irrigation and economic growth, with eight projects already completed.
Construction of small dams in Balochistan is part of a multiphase Federal programme aimed at building 100 small dams to tackle water security and improve irrigation, with significant progress expected in the fourth and fifth phases by the end of the current year. At least 64 small dams have been completed, with the remaining 36 in the final stages of completion to meet the 2026 goal. According to the latest available report, 31 small dams are under construction in Sindh.
Published in Dawn, The Business and Finance Weekly, April 6th, 2026