Following the 21 per cent, or Rs55 per litre, increase effective since March 7 the government announced an even sharper increase of 42.5pc or Rs137 per litre, pushing the new price of petrol to Rs458.4 per litre before eventually reducing the petrol levy by Rs80 per litre and bringing the overall price to Rs378 per litre on April 3.

Diesel prices have also surged sharply to Rs520.35 per litre. The decision was taken in response to rising international oil prices.

This move comes despite earlier resistance from Prime Minister Shehbaz Sharif, who had previously rejected proposals to increase fuel prices and even committed to absorbing financial pressure of around Rs56 billion to protect the public.

Pakistan today stands at a delicate economic crossroads, where numbers are no longer just statistics, they are signals. Public debt has surged beyond Rs80.52 trillion, with the per capita burden rising to around Rs333,041.

Pakistan today stands at a delicate economic crossroads, where numbers are no longer just a statistic, they are signals

The debt-to-GDP ratio, which stood at 71.7pc at the close of FY25 before easing slightly to around 70pc in FY26, continues to breach the statutory limit of 60pc set under the Fiscal Responsibility and Debt Limitation Act. Finance ministry reports to Parliament acknowledge that the government has been in “perpetual breach” of this ceiling for years.

The fiscal picture is equally sobering. Despite consolidation efforts, Pakistan continues to run a persistent budget deficit. Debt servicing alone consumes more than half of total tax revenue (52.9pc 1HFY26) — leaving limited space for development, education, or health.

In the current geopolitical climate, this fiscal squeeze could tighten further. Rising regional tensions and the evolving Middle East conflict increase the likelihood of higher defence spending. Any such reallocation of resources would further compress the already limited fiscal space, leaving even less available for development, education, and health.

This fragility has deepened further as the Federal Board of Revenue missed its tax collection target by Rs612bn in the first nine months of FY26, collecting Rs9.31tr against a projected Rs9.92tr.

The shortfall reflects slowing economic activity amid war-related uncertainty and supply chain disruptions. Growth, though present, remains modest and fragile. The economy is expanding at a rate between 3.75pc and 4.75pc, according to the State Bank of Pakistan. But this relatively optimistic estimate (presented in late January) stands above more cautious external projections — around 3.2pc by the International Monetary Fund (IMF) and near 3pc by the World Bank.

Regional instability, rising energy prices, and disrupted trade flows are expected to shave off 0.3–1.3 percentage points from growth across developing economies. For Pakistan, heavily dependent on imported fuel, the vulnerability is acute. Even a 4pc growth rate, while statistically respectable, remains insufficient for a country of over 240 million seeking meaningful upward mobility and employment generation.

Tax collection, despite improving to about 10.6pc of GDP, still reflects a narrow base and structural inefficiencies. Persistent shortfalls reinforce a simple equation: when growth is slow and taxation limited, deficits persist, borrowing rises, and fiscal pressure deepens.

And then comes inflation — the most personal of all economic forces. After the trauma of nearly 40pc inflation in 2023, the numbers eased to around 5.6–5.8pc in late 2025, offering temporary relief. But for many households, relief was only felt briefly in the kitchen, at the fuel pump, and in monthly bills before pressures began to return.

Inflation is now firming up again amid the US-Israel war on Iran, which has driven up global energy prices and disrupted supply chains. According to the Pakistan Bureau of Statistics, headline inflation stood at 7.3pc year-on-year in March 2026, up from 7pc in February. On a month-on-month basis, inflation rose by 1.2pc, compared to 0.3pc in the previous month.

Energy costs are once again at the centre of the storm. An official notification by the Oil and Gas Regulatory Authority on March 31 raised liquefied petroleum gas prices by 35pc effective April 1. The per-kg rate rose to Rs304.15 from Rs225.84, while a standard 11.8kg domestic cylinder increased by Rs924 to Rs3,588.6, driven by a 44pc surge in the Saudi Aramco Contract Price.

A sustained rise in domestic oil prices may push inflation well above 10–12pc, especially as domestic fuel adjustments pass through to broader costs. With over 80pc of its oil imported, external shocks quickly translate into household strain, widening the gap between incomes and living costs.

During July–February FY26, Pakistan recorded a current account deficit of $700m, compared with a surplus in the same period last year primarily due to the widening trade deficit.

Now, the outlook for remittances has also become increasingly uncertain amid the evolving Middle East crisis, given Pakistan’s heavy reliance on inflows from the Gulf Cooperation Council region.

Any disruption to labour markets or economic activity in host countries could directly affect these vital transfers. While the ongoing $7bn IMF programme provides crucial breathing room for reserves, it is only one pillar of Pakistan’s dependence on external support.

China, Saudi Arabia, and the United Arab Emirates regularly step in with rollovers on deposits, deferred oil payments, or direct loans, often on short notice. Multilateral partners, including the World Bank and the Asian Development Bank, fund long-term development and extend budget support.

This constellation of inflows helps avert a balance-of-payments crisis, but each comes with its own conditions, timelines, and political strings.

Published in Dawn, The Business and Finance Weekly, April 6th, 2026