Pakistan Economy Faces Risks from US-Iran Tensions, Panel Warns
Pakistan's Economic Affairs Division (EAD) has alerted a parliamentary committee to potential economic risks stemming from renewed US-Iran conflict. These risks include higher energy costs, increased inflation, greater external financing needs, and slower economic growth. The National Assembly Standing Committee on Economic Affairs Division, chaired by Mirza Ikhtiar Baig, urged the government to explore cost-effective financing for the Lyari Elevated Freight Corridor (LEFC) before accepting potentially stringent loan terms from the Korean Exim Bank. The committee also voiced concerns regarding delays and funding shortfalls affecting the Karachi Greater Water Supply Project (K-IV). EAD officials noted that while Pakistan's macroeconomic fundamentals were improving at the start of 2026, the Middle East conflict and temporary Strait of Hormuz closure disrupted energy markets and supply chains. Although oil prices and trade normalized after a ceasefire, regional uncertainties remain, posing a threat to Pakistan's economy. The committee highlighted a significant cost disparity for the LEFC project, with the Korean Exim Bank's proposed financing nearly doubling the National Highway Authority's estimate. They recommended consultations between EAD, NHA, Ministry of Planning, and KPT to devise a financially sound model. Regarding the K-IV project, the committee expressed alarm over its slow progress and a substantial funding gap, with only Rs10 billion allocated against an estimated Rs78 billion requirement, jeopardizing timely completion and Karachi's water supply. A briefing on K-IV's status and financial needs is expected at the next meeting. Progress on Tranche-III of the CAREC project was also discussed, with NHA awarding the contract for completion by December 2027.
The EAD's warning underscores the interconnectedness of global geopolitical events and national economies, particularly for energy-importing nations like Pakistan. The potential for renewed US-Iran conflict highlights the vulnerability of energy markets and global supply chains to regional instability. This situation presents a classic challenge for economic policymakers: balancing the need for critical infrastructure development, such as the Lyari Elevated Freight Corridor and the Karachi Greater Water Supply Project, with the imperative to secure financing on terms that do not unduly burden the national exchequer. The committee's focus on cost-effectiveness and prudent financial modeling reflects an awareness of these trade-offs. Looking ahead, diversifying energy sources and strengthening domestic economic resilience will be crucial for mitigating the impact of such external shocks, while robust project oversight is essential to prevent cost overruns and delays that exacerbate financial pressures.
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