On Tuesday, Pakistan’s reserves stood at $16.4 billion. By 23 April, the government will have sent $4.8 billion out the door in debt payments, including $3.5 billion owed to the UAE and a $1.3 billion Eurobond that matured on 8 April. If no one replaces that money, reserves drop to roughly $12.8 billion, which falls below the floor the IMF requires.

This is happening in the same week Pakistan pulled off its most visible diplomatic win in years: brokering the US-Iran ceasefire.

The KSE-100 surged 9.32% in a single session. Global oil risk fell. Islamabad earned a seat at the negotiating table it has wanted for decades.

The base case for the next 60 days

Pakistan's diplomatic standing buys goodwill and modest energy cost relief, but the reserve gap becomes the binding constraint within 30 days unless a bilateral partner steps in.

Bilateral financial flows, the $800mn Etisalat payment, and potential sanctions relief that could unlock the Iran-Pakistan gas pipeline. The main buffer is Pakistan's simultaneous credible access to both Washington and Tehran, which no other actor in the region currently holds.

The main buffer is that diplomatic standing itself, which strengthens Pakistan's hand in funding conversations.

The main vulnerability is the $3.5 billion hole in reserves for which the push would be for truce to hold long enough for the negotiation talks in Islamabad to produce a written framework, giving Pakistan a narrow window to convert diplomatic capital into concrete economic concessions.

What Changed

Pakistan's diplomatic footprint is structurally larger this week than last.

Last year, when Field Marshal Asim Munir held a one-on-one lunch with President Trump at the White House, it was the first time a sitting US president received Pakistan's military chief without civilian counterparts present.

Iran's President Pezeshkian called PM Shehbaz Sharif on March 28, praising Pakistan's "supportive role for peace." On March 29, the foreign ministers of Saudi Arabia, Egypt, and Turkey flew to Islamabad and produced a five-point peace plan calling for an immediate ceasefire and Hormuz reopening. FM Dar then flew to Beijing; China endorsed the effort and issued a joint statement. Israel removed Iran's Foreign Minister and Parliament Speaker from its assassination target list reportedly at Pakistan's request.

Pakistan is now functioning simultaneously across the US, Iran, Gulf Arab, and China diplomatic channels. India, by contrast, has been structurally sidelined. PM Modi's visit to Israel right before strikes began destroyed New Delhi's claim to neutrality. That shift in relative position is durable regardless of what happens to the ceasefire next week.

The ceasefire itself is under immediate strain, and the downside is sharp. Iran submitted a 10-point plan that includes retaining physical Strait of Hormuz control, excluding "unfriendly" flag states, imposing inspections, and charging fees which US has not agreed to, and which carries legal risks under UNCLOS. But the US also struck Kharg Island, handling roughly 90% of Iran's crude exports, hours before announcing the ceasefire. The trust deficit is likely to have enforced this as a non-negotiable.

CFR notes Iran now holds Strait leverage it did not possess before the war began

Nonetheless, the ceasefire is more likely to hold than not. And that is because all three belligerents are spent.

The US faces domestic war fatigue and a strategic pull toward China competition. The US has depleted ammunition stockpiles in the region and overestimated air power's ability to force regime change.

Iran’s layered sanctions and subsidy pressure at home make a prolonged fight unaffordable.

Israel’s long range strike capacity is stretched, and its domestic politics are strained.

Each side chose to pause because continuing costs more. That gives the ceasefire a roughly 60% chance of lasting three to five years. It remains reversible at any point.

Formal talks begin at Islamabad’s Serena Hotel on 11 April. VP JD Vance leads the US side, joined by Steve Witkoff and Jared Kushner. Iran has sent Parliament Speaker Ghalibaf and FM Araghchi. Vance’s visit makes him the first sitting US Vice President in Pakistan since Biden in January 2011.

Pakistan’s broker position rests on a specific mix. It comprises 900 km of shared border with Iran, the world’s second largest Shia population, Major Non-NATO Ally status since 2004, no US military bases on its soil, and a direct White House channel that opened after the Pakistan-India standoff in May 2025. That combination lets Pakistan talk credibly to the US, Iran, Gulf states, and China at the same time.

Before the ceasefire, the Strait of Hormuz was effectively closed. On 1 and 2 March, zero ships passed through. MSC, Maersk, CMA CGM, and Hapag-Lloyd pulled out entirely. Flow dropped more than 90%. Roughly 10 million barrels per day of oil went offline. DP World shut down Jebel Ali after interception debris started a fire. Emirates SkyCargo, KLM, and Turkish Airlines suspended Gulf flights. Both air and sea freight through Dubai stopped at the same time for the first time in the city’s modern history.

This consequential yet structural decline of the UAE has opened real competitive space for Pakistan that was not available 30 days ago. UAE saw a 51% reduction the volume of property transactions (deal count) since March 28 when attacks on Iran began. Prices fell 4-7%. US financial institutions (CITI, Goldman Sachs) shut their physical operations in the UAE. Gold was trading at a $30/oz discount in Dubai as capital flees. On 28 March, Iranian strikes hit Emirates Global Aluminum’s smelter in Abu Dhabi and Aluminum Bahrain’s facility. EGA reported damage that will take 12 months to repair. Six workers were injured. These are hits to productive assets that will take quarters to restore even with the ceasefire in place.

More durably, IMEC, the India-Middle East-Europe Economic Corridor announced in September 2023, has been effectively neutralised. Saudi Arabia conditioned participation on Palestinian statehood, UAE infrastructure is now war-damaged, and Israel is globally isolated. IMEC was the one geopolitical infrastructure project capable of permanently locking in India's alternative corridor advantage over Pakistan. Its collapse removes that threat from the next planning horizon.

Pakistan's bilateral position with the UAE has also shifted. The UAE bilateral loan will soon be repaid, removing Abu Dhabi's primary financial coercion instrument over Islamabad at precisely the moment the UAE's own bargaining power is at a cyclical low.

While all this was happening, Pakistan, notably, was the first country (other than China and India-bound vessels) to cross Hormuz after the closure. A Pakistani oil tanker crossed on 16 March with Iranian permission. Malaysia followed on 26 March. A French ship crossed on 3 April.

Interesting signals that matter

1. Remittances fell 5% year on year in March, from $4.054 billion to $3.831 billion. The drop coincided with Gulf flight suspensions and port closures that disrupted worker and money flows. If this recovers as the Gulf normalizes, it was a blip. If it reflects workers leaving or remittance channels shifting away from Pakistan, the annualized loss runs $2 to $3 billion in foreign exchange inflows. That tightens the reserve position right when the UAE repayment is already draining it.

2. The KSE-100’s one day 9.32% surge (closing at 165,811, near its January all-time high of 170,700) shows that markets have priced in a peace dividend ahead of any fiscal confirmation. March inflation ran at roughly 7 to 7.3% year on year, above the State Bank’s 5 to 7% target. The SBP held its policy rate at 10.5%.

3. Hapag-Lloyd and MSC are actively rerouting or suspending Gulf-bound services, and DP World (which operates Jebel Ali) has opened emergency land corridors into Saudi Arabia to handle diverted cargo. For Pakistan, this is an opportunity. If major carriers treat Jebel Ali as a risk zone for the next 12-24 months and Pakistan takes no action to accelerate Gwadar's commercial throughput capacity or address Balochistan's political instability, that window closes without Islamabad capturing any diverted trade flow.

4. Pakistan is formally demanding the $800mn Etisalat payment while the UAE's negotiating power is at its weakest point in years. If Pakistan collects while this leverage window is open, it strengthens reserves without touching the external bond market. Every month of delay risks UAE financial actors recovering faster than property-crash data implies.

What This Means Now

People

Lower oil risk reduces the probability of fuel, electricity, and food price spikes over the next one to three months. If Hormuz stays open and oil prices stay down, inflation should ease toward the SBP’s target band.

The question for households: does the government use this breathing room to cut energy circular debt (the system of unpaid bills between power companies and the government that eventually shows up in everyone’s electricity tariff), or does it pass the benefit through as cheaper fuel? For the roughly 9 million Pakistani households that rely on Gulf remittances, any sustained disruption to worker flows hits daily budgets directly. The March dip deserves close attention.

Investors

The SBP policy rate sits at 10.5%. April debt service totals $4.8 billion against $16.4 billion in reserves. When the UAE’s $3.5 billion deposit leaves and if no bilateral partner (Saudi, Chinese, or other) replaces it, reserves breach the IMF floor and the programme faces complications.

Two separate forces are at work here.

1. The global force: lower Gulf war premiums, cheaper oil, and improved risk appetite across emerging markets help Pakistan passively, the same way they help every other frontier economy.

2. The local force: whether Islamabad uses this window to push through the IMF’s 11 structural benchmarks (tax reform, state owned enterprise cleanup, trade liberalization, special economic zone policy) determines if the external relief compounds or evaporates once global premiums tick back up.

Rational positioning: hold current exposure, do not add until the UAE deposit question resolves by 17 April, and hedge any new rupee positions against the reserve floor breach scenario. Bank equities, IT exporters, and short duration government paper remain the rational sectors. Avoid long duration rupee bonds and anything with direct Hormuz logistics dependence until insurance and surcharge costs clear.

Businesses

The immediate operational signal is that energy costs and logistics disruption risk have stabilised, but not resolved. CMA CGM reopened Gulf bookings on 11 March using overland routes. Saudi Aramco pushed Red Sea pipeline contingencies, with Yanbu becoming an alternative crude loading point. Jebel Ali resumed operations with booking restrictions through late March. War risk surcharges and elevated insurance premiums have not fully cleared.

For import dependent manufacturers and Gulf route exporters, operating costs remain higher than pre-war levels. CPEC Phase II (21 MOUs, roughly $8.5 billion) benefits from reduced country risk under the ceasefire, but the IMF’s structural benchmarks on state owned enterprise restructuring and special economic zone policy create regulatory uncertainty for contracts in those corridors.

Policy and development actors

Three constraints eased this week that did not ease last week: the UAE bilateral loan will be repaid; IMEC's neutralization removes India's corridor-competition pressure; and Pakistan has unprecedented simultaneous access to the US, China, Iran, and Gulf Arab states. Pakistan’s broker status gives it a stronger hand in IMF review discussions and multilateral lending conversations. The 11 new benchmarks create a tight reform window.

The Saudi Strategic Mutual Defence Agreement and CPEC Phase II MOUs show Pakistan locking in obligations to multiple partners at once. That gives it bargaining power and creates obligations that reduce future policy flexibility. Meanwhile, Transparency International Pakistan flagged on 9 April that the $800 million owed from the 2005 PTCL privatization (Etisalat/e&) has accumulated to roughly $6 billion in penalties, sitting uncollected while the government borrows at high cost.

The binding constraints that did not ease are inflation above the SBP target band, GDP growth too weak to broaden PSX gains beyond banks and a few large conglomerates, and a domestic sectarian fault line that limits how far the civil-military leadership can publicly commit to either side of the US-Iran divide without triggering protests with real fiscal and security costs.

The Iran-Pakistan gas pipeline is the single biggest structural energy fix available to the country and requires a dedicated cross-ministry task force now, while a sanctions-relief window may be opening in the Islamabad talks.

Any fiscal dividend unlocked by ceasefire-driven goodwill must be directed at infrastructure, tax-net expansion, and energy investment, not short-term consumption relief, or the window will produce a sugar high with no lasting structural change.

What to Watch Next Week

1. UAE deposit replacement. The first $450 million tranche falls on 11 April, with $2 billion on 17 April and $1 billion on 23 April. If no bilateral partner (Saudi, Chinese, or other) announces a replacement deposit by 17 April, reserves breach the IMF floor. Watch also for early signals: Gulf sovereign wealth fund liquidity allocations shifting away from Pakistan linked bonds would indicate the deposit gap will not be covered.

2. Ceasefire durability. Vance and Ghalibaf sit down on 11 April. Lebanon is the fault line: Israeli strikes on 8 April killed over 200 people, and Araghchi warned Tehran could walk away if strikes continue. If the talks produce a framework or extension, Pakistan's broker premium holds. If Lebanon triggers an Iranian exit, oil spikes and the peace dividend disappears.

3. Remittance recovery. March fell 5% year on year. April data (available mid-May) will show whether this was a logistics disruption or a structural shift. Gulf airline and port normalization rates are a leading indicator. If remittances stay below $3.8 billion for a second month, the SBP's current account assumptions need revision.

4. Etisalat $800mn payment: demand confirmed or delayed. Any public confirmation that Pakistan has formally initiated legal or diplomatic proceedings to recover the $800mn Etisalat outstanding payment, or alternatively a UAE signal of refusal or extended delay. Why it matters: Successful collection is a direct FX reserve positive without external bond issuance at a moment when Pakistan's leverage over the UAE is at a cyclical high. Delay or refusal would signal that UAE financial actors are recovering faster than the property-crash data implies, and would require revision of the "UAE leverage permanently reduced" thesis that underpins part of the bullish Pakistan positioning case.

Posture

Compared with last week, a rational person with Pakistan exposure should hold positions rather than add, treat 17 April as a binary trigger on the reserve question, and hedge new rupee exposure against the possibility that reserves breach the IMF floor.

Overall posture: Pakistan is selectively investable for the next 30 to 60 days, which means a rational investor should maintain net Pakistan exposure and focus on bank equities, IT exporters, and short duration government paper, while avoiding long duration rupee bonds and any sector with direct Hormuz logistics dependence until insurance and surcharge costs normalize.

Confidence Note

Taken together, the strongest signals this week are Pakistan's confirmed dual-channel access to both Washington and Tehran (Munir-Trump lunch; Pezeshkian-Sharif call; Saudi-Egypt-Turkey FMs in Islamabad), the UAE's structural weakening at a moment Pakistan holds zero bilateral debt leverage from Abu Dhabi, and the PSX's 9.32% single-day re-rating on falling Gulf-risk premium, so the base case is that Pakistan has entered a 90-day window of elevated diplomatic and financial leverage it has not held since the early 1970s.

The base case: Pakistan earns a modest diplomatic and energy cost uplift and faces a tight 30 day window where reserve adequacy becomes the binding constraint.

If this view is wrong, it is most likely because the ceasefire collapses before the Serena talks produce a framework (triggered by continued Israeli strikes on Lebanon and an Iranian walkout), which would push oil back above $100, force SBP tightening, and throw Pakistan’s IMF programme into emergency review, raising imported inflation by 3 to 5 percentage points within a quarter.

For the next 30 to 90 days, risk is skewed to the downside for importers and consumers (energy cost reversal if the ceasefire breaks), roughly balanced for investors (market optimism set against fiscal fragility), and modestly to the upside for policy actors, provided they convert diplomatic standing into concrete funding before the window shuts.

If the deposit gap is filled by 17 April and the Serena talks produce even a procedural extension, Pakistan enters May with the strongest diplomatic hand it has held in a decade and just enough reserves to keep the IMF programme alive. If either fails, the ceasefire becomes a line item in the history books, and the fiscal math takes over.

— Syed Ali Shehryar

• At midnight on April 2, a government notification raised petrol by Rs137 per litre, taking the pump price to Rs458.40.

• Seventy million Pakistanis already live below the poverty line, real wages have not moved in three years, and FBR (the Federal Board of Revenue, Pakistan’s main tax collection body) is Rs610 billion short of its nine-month target with no credible plan to recover before June.

• The government had no fiscal room to absorb any of the Gulf oil shock, so it passed the entire cost to consumers.

• For the next 30 to 90 days, expect elevated inflation, falling household spending, growing political pressure, and a probable third downward revision of the FBR target, all while Pakistan runs an active military operation on its western border.

• Pakistan’s relationships with Gulf states and China are currently providing the financing bridges keeping the economy afloat. Both depend on Pakistan appearing stable, and this hike is now putting that stability under direct pressure.

What Changed

The Price Shock and What It Reveals

Triggered externally and by internal mismanagement, Petrol rose Rs55 on March 7 and Rs137 on April 2 — a 43% cumulative jump in four weeks.

Oil prices jumped 20% in early March on Iran war fears, and Pakistan was identified as one of the most exposed economies in the world. But the reason every rupee of that shock landed on the consumer, rather than being absorbed by any government buffer, is a domestic failure.

FBR collected Rs9.307 trillion against a target of Rs9.917 trillion in the first nine months of FY26, leaving a Rs610 billion hole. March alone added Rs182 billion to that gap through three simultaneous hits:

• Import tax receipts fell Rs64 billion as Gulf war disruptions reduced trade volumes,

• LNG shortages shut fertiliser plants and cost Rs40 billion in lost revenue,

• Refunds issued by FBR nearly doubled, rising to Rs61 billion from Rs34 billion the month before.

The government’s response was to raise the petroleum levy, a charge that sits outside FBR’s books and does not count toward the official tax-to-GDP ratio.

With that, it has moved to cut development spending to give an artificial sense of fiscal stability.

FBR now needs Rs4.672 trillion in the remaining three months of FY26 to meet even the already-lowered target. No official or analyst has made a credible case that this is achievable.

The Structural Problem the Shock Exposed

The FBR gap did not start with the Iran war. FBR missed its FY25 target by Rs178 billion after two downward revisions, and the Tajir Dost Scheme (a government programme to bring traders into the tax net) raised near-zero revenue against a Rs50 billion target.

Pakistan is now negotiating its second downward revision of the FY26 target, from Rs13.979 trillion to Rs13.45 trillion, which would still deliver only 10.6% in tax as a share of GDP against the agreed 11%.

Miss, revise down, miss again. Three fiscal years in a row.

A research paper published by FBR’s own staff names the structural cause directly:

Placing a non-professional generalist in the FBR Chairman role is the most important variable behind Pakistan’s chronically low revenue performance, with Pakistan’s tax collection described as “among the lowest in the world.”

The Finance Ministry runs on a similar pattern:

Staffed mainly by rotational civil servants moved between posts every few years, rather than by economists and revenue specialists who build expertise over time.

Each external shock therefore finds the same unfixed revenue base that IMF tries to fix. Not the cabinet. Not parliament. That is where Pakistan sits in the arc of a state in financial trouble: The decisions that matter most are made outside its own institutions.

The Social and Security Context

Pakistan’s poverty rate was already 29% before this hike. This is the highest in 11 years, up from 21.9% in FY19.

Rural poverty rose from 28.2% to 36.2% in a single year.

In Balochistan, almost one in every two people lives in poverty.

Households at this income level spend 40 to 50% of what they earn on food.

Petrol at Rs458 raises the price of flour, medicine, and construction materials, practically anything that moves by road. Nothing is insulated.

On the western border, Operation Ghazab Lil-Haqq has also increased the demand for diesel and aviation fuel. Those costs move with the same oil price shock that is pushing petrol to Rs458. Defence fuel bills and household fuel bills are rising from one source.

So defence and household fuel bills are both rising off the same external shock. The state is trying to run a war, meet IMF targets, and manage the streets on a revenue base that keeps failing. That is one binding constraint, not three separate issues.

Quiet Moves That Matter

The IMF has set 11 structural benchmarks for Pakistan through the end of 2026.

These are specific conditions around tax policy, spending, and reforms. If Pakistan misses too many of them, the IMF can pause or end the programme.

The petrol levy hike buys the government a little more apparent compliance on paper. It does not stop the benchmark clock. April revenue numbers will be the first under the Rs458 fuel price. If demand falls and imports drop, revenue from consumption and trade will fall. That will move Pakistan closer to a programme review point that it is not ready to pass.

The market is trading the fuel headline. It is not yet trading the risk that the benchmarks trigger a funding shock. That gap is where the more serious risk sits this week.

What This Means Now

People

The fuel hikes now line up directly against people who already have nothing left to cut.

Over the next one to three months, three expense lines move together.

1. Transport fares rise because bus and rickshaw owners cannot absorb Rs458 petrol.

2. Flour and other staples cost more because mills and trucks run on diesel that tracks the same oil prices.

3. Electricity bills go up because backup power for the grid still depends on furnace oil and RLNG, which are tied to global fuel prices and Gulf supply.

Unemployment stands at 7.1 percent and poverty has risen from 21.9 percent to 28.9 percent since FY19.

That means the shock lands on households that have already taken a large hit with no savings buffer.

The real medium term risk is not just a few hard months. It is a lasting drop in small savings and informal investment. That hits small shop openings, rural equipment purchases, and even remittance behaviour.

For a household, the practical move now is to write down all monthly bills under two cases.

One, fuel and power stay near current levels for six months.

Two, they rise again if Gulf supplies get tighter.

Any expense that cannot survive both cases without new debt is at risk and needs a plan.

Investors

For the next 60 to 90 days, a cautious strategy is to hold only short term positions that can be exited quickly, in names with mostly local cost and revenue, such as basic consumer goods. Avoid long term government bonds, banks with heavy exposure to public paper, and shares where earnings depend on state projects or cheap imports.

Businesses

Fuel is now the tax that runs through every business model.

Fuel costs that runs through logistics, generators, raw material transport, and staff commutes are squeezing exporters, especially in textiles, from both ends. Their input and freight costs are up, while buyers can shift orders to Bangladesh or Vietnam if Pakistani prices rise too much or if they worry about unrest.

Producers of chemicals, plastics, and medicines buy imported inputs that are often linked to oil and gas prices. They sell into a market where household demand is slowing. That means less room to raise prices without losing volume. At the same time, suppliers up the chain will push for tighter payment terms to cover their own cash needs.

For firms with Pakistan exposure, three moves stand out.

1. Reprice contracts where possible using a fuel cost clause or shorter price tenors.

2. Cut inventory cycles so less stock sits on shelves at old prices while costs move.

3. And review any capital commitment that assumes calm conditions around the June IMF review period.

Those plans carry more risk now.

Policy and Development Actors

Policy makers and aid agencies are now operating inside a very tight box.

The state is trying to fund cash transfers, some level of public projects, and a counterinsurgency, all while keeping the IMF on side. The gap in tax revenue, the use of the fuel levy, and the cuts to project spending show that there is no spare fiscal room left. The 11 IMF benchmarks through 2026 are a timer. If too many are missed, the programme can pause.

If the programme stalls, access to foreign exchange shrinks quickly. That affects fuel imports, medicine, and any field operation that depends on imported gear or services. It also affects Gulf and Chinese confidence in Pakistan as a partner.

For government and development actors, the practical move is to triage. Which programmes absolutely need state co funding in Q4 FY26, and which can be slowed without deep harm. Which reforms can realistically pass in the next three months, and which are fantasy under current political and social strain. This is not a quarter where every ambition can move forward together.

What to Watch Next Week

April CPI reading

Watch if headline inflation goes into double digits. The government projects 7.5 percent inflation for FY26.

The April figure will be the first after the full Rs137 hike feeds into prices.

A print above 10 percent would break that forecast and push the State Bank toward higher interest rates.

That would raise debt service costs and deepen the budget gap. It also gives the IMF reason to doubt the programme’s base case.

If inflation jumps, expect local bonds and PSX to reprice and the June IMF review to get rougher.

FBR April revenue data

April is the first month with Rs458 petrol fully in place.

If people spend less and trade volumes fall, tax collection will not match the pace needed to raise Rs4.672 trillion by June.

The revised Rs13.45 trillion target would then be out of reach.

If April numbers look weak, treat that as an early sign of programme stress, not a one month blip. Investors and firms with 90 day exposure should be ready to cut risk fast.

Security events tied to TTP and Operation Ghazab Lil Haqq

Each spike in fighting raises fuel and logistics costs just when households are already angry about prices.

If a major attack hits KP or Balochistan, where poverty is above 35 percent, in the same week that fuel pain and tax stories dominate the news, that is the mix that can turn scattered anger into organised street action.

That would raise the political risk that foreign lenders and investors use in their models and can shorten Pakistan’s external funding runway.

So what: Compared with last week, anyone with Pakistan exposure should shorten time horizons, cut positions that depend on state project spending, and read the fuel levy as hard proof that structural tax reform will not land before the June IMF review.

Interestingly, in Principles of Changing World Order, Ray Dalio tracks eight main strength markers for a country: education, competitiveness, innovation and technology, economic output, share of world trade, military strength, financial center strength, and reserve currency status. These tend to rise together in a good phase, then erode together when a country starts to slide.

Overall posture: Summed in the image below.

The petrol hike exposes Pakistan’s fiscal bleed. The next months will show whether the state keeps asking the same small group of people to pay for the same old failures, or whether anyone in power is finally ready to accept what the numbers are already saying.

Surviving week at a time and at the wits’ end

- Syed Ali Shehryar

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• Qatar stopped sending LNG to Pakistan on March 2. The government told a Senate committee on March 16 that no liquefied natural gas will be available in the country after April 14.

• Gas flowing to the power sector has already been cut by more than half, from 300 million cubic feet per day (mmcfd) to 130 mmcfd.

• Diesel is up roughly 100% and petrol roughly 70% since March 7, the direct result of the US-Israel war on Iran shutting down roughly a fifth of the world’s oil supply through the Strait of Hormuz.

• Pakistan gets 70% of its petroleum from the Middle East.

• The country’s reserves stand at 11 days of crude, 21 of diesel, 27 of petrol.

• Remittances are still arriving in force, $3.29 billion in February 2026, up 5.2% year-on-year, but more than half of that comes from Gulf countries now living inside an active war zone.

The base case for the next 30 to 90 days is a managed energy squeeze: rolling power shortfalls, electricity costs rising sharply if the government buys spot LNG at $24 per unit versus the $9 Qatari contract price, and food price pressure from fertiliser plant curtailments. Pakistan’s domestic solar and renewable growth offers partial relief for electricity generation. It does not cover transport fuel, aviation, or industrial gas.

WHAT CHANGED

The LNG supply is running out. Of eight cargoes due in March, two arrived. Six scheduled for April are not coming. Officials are now working the phones to Azerbaijan for spot supplies, but at $24 per unit versus $9 under the Qatari deal, every unit of gas Pakistan buys between now and whenever Hormuz reopens costs 167% more. That cost either goes onto the electricity bill or into the government’s fiscal account. Neither option is clean given where Pakistan’s finances sit.

The fuel price data from the Senate briefing tells a straightforward story. High-speed diesel moved from $88 to $187 per barrel since the war began. Petrol went from $74 to $130. OGRA confirmed diesel is up about 100% and petrol about 70% since March 7 alone. The government passed Rs55 per litre of this onto consumers. Petroleum reserves are thin: 11 days of crude, 9 days of LPG. If shipping disruptions run past 30 days without new supply arrangements, Pakistan moves from a price problem to an access problem.

Remittance numbers look good but uncertain as the conflict progresses. February’s $3.29 billion was up 5.2% year-on-year, and the cumulative July to February figure of $26.5 billion is up 10.5% from the same period a year ago. The issue is where this money comes from. Saudi Arabia contributes 23.5% of FY26 remittances, the UAE 20.6%, and the rest of the Gulf another 9.5%. That is more than half of Pakistan’s foreign exchange lifeline coming from a region under active bombardment. A 30 to 40% sustained drop in Gulf-sourced remittances would cut monthly inflows by $500 to $700 million. A broader Gulf economic slowdown, in which oil firms suspend operations and construction projects freeze, would hit Pakistan’s external account harder than any single price shock.

Two quieter moves deserve attention. OGDC announced a new oil and gas discovery at Baragzai X-01 in Khyber Pakhtunkhwa on March 4, flowing 3,765 barrels of oil per day and 11.2 mmscfd of gas. The joint venture brings in PPL at 30% and GHPL at 5%. In a week defined by import disruption, a domestic production addition that extends OGDC’s reserve life is genuinely useful news. The second item is a policy proposal, not yet a decision: the Petroleum Division wants to retire Rs680 billion in gas circular debt (the accumulated unpaid bills in the gas supply chain) over five years by redirecting dividends from state-owned energy companies. PPL would contribute roughly Rs230 billion and GHPL roughly Rs200 billion under this plan. If it becomes policy before OGDC’s April 23 earnings call, investors holding these names for dividend income need to reprice that expectation now. HUBC, the power company most exposed to gas input costs, is already down 10.67% year-to-date, trading at Rs197.75. The market is telling you the fuel risk is real.

On the Afghan border, Pakistan declared open war on Afghanistan on February 27, struck Kabul on March 16, and accepted a fragile Eid ceasefire brokered by Saudi Arabia, Turkey, and Qatar on March 18. Nearly 66,000 people have been displaced inside Afghanistan. The UN's 2026 humanitarian appeal for Afghanistan stands at $1.71 billion but is only 10% funded. International donors, including the UK and UAE, have historically channelled aid through Afghan authorities whose ability to separate civilian funds from armed group logistics has been poor. The United Kingdom recently announced an additional £3 million (AFN 257 million) in humanitarian assistance to Afghanistan, aimed at supporting people affected by natural disasters and other shocks. If that pattern holds, aid flowing into Afghanistan right now could extend the conflict's duration and raise Pakistan's own defence costs, fuel bills, and security spending beyond what the border war already demands.

WHAT THIS MEANS NOW

People

Electricity bills will rise before they fall. Gas to the power sector is already down to 130 mmcfd from 300, and once LNG stocks run out on April 14, load shedding will increase. Diesel at double its pre-war price raises the cost of food transport, farming machinery, and everyday commuting. For the roughly 4.9 million Pakistanis working in Gulf countries, the near-term picture is not mass unemployment. Most are still employed. But Gulf businesses are slowing, and uncertainty is rising. Over the next three to twelve months, the workers most at risk are those in Gulf construction and lower-skilled services, the same sectors most exposed to project freezes when investment confidence drops.

Investors

OGDC and PPL sit on the right side of this energy shock. Rising oil prices increase the value of their domestic production, and OGDC’s Baragzai discovery adds a near-term production catalyst. OGDC holds Rs327 billion in cash and short-term investments alongside Rs501 billion in overdue receivables; the receivables remain unresolved, but the cash position is substantial. The dividend proposal is the watch item. If the Petroleum Division’s plan to redirect E&P dividends toward gas circular debt retirement advances to formal policy, the yield story for OGDC and PPL changes materially before earnings season. HUBC is the clearest risk in the listed space. A power company running on gas in a week when gas has been cut by more than half is not a hold-and-collect story right now. On FX and remittances, the February data is healthy and Eid will likely produce strong March figures. Investors with longer-duration Pakistan positions should stress-test their assumptions against a scenario where Gulf remittances soften through the second half of FY26, while the import bill stays elevated.

Businesses

Gas curtailment is not a future risk. It is happening now. Power sector gas is at 130 mmcfd. One fertiliser plant has had supply cut by 50%. Businesses on SSGC or SNGPL supply should plan for further cuts between now and mid-April, not a recovery. Any contract priced before March 7 that relies on fuel or energy inputs needs review; those inputs cost 70 to 100% more today. Exporters shipping through Gulf ports face war risk insurance premiums that could add 15 to 25% to freight costs, which adds an estimated $50 to $100 million per month across the whole export base. Fertiliser producers dependent on LNG feedstock face the sharpest input cost shift of any sector; at $24 per unit spot versus $9 contracted, production economics are no longer what they were in January. Businesses that use Afghan transit or the Iran corridor for Central Asian trade should treat both routes as closed for planning purposes.

Policy and development actors

The government is simultaneously managing a fuel supply crisis, a border war with Afghanistan, domestic sectarian tension, and a fragile IMF programme, with petroleum reserves measured in days, not months. The decision on spot LNG, whether to absorb the $24 per unit cost fiscally or pass it through to tariffs, will set the tone for the IMF programme’s fiscal targets this quarter.

Pakistan’s Strategic Mutual Defence Agreement with Saudi Arabia creates a political and military obligation which commits both states to treat aggression against one as aggression against both, with public statements from Pakistani officials like Deputy Prime Minister Ishaq Dar citing it as a reminder to Iran during recent Iranian strikes on Saudi soil. That clause has been invoked in the Iran context, where Pakistan used the pact to seek Saudi assurances against attacks on Iran and to limit Iranian retaliation, but no source spells out automatic troop commitments for the Afghanistan conflict, leaving obligations more about coordination and deterrence than direct intervention. The pact creates binding political and military expectation for both crises, exactly when Pakistan and Saudi Arabia face overlapping pressures from Taliban hostilities and Iranian strikes.

Field Marshal Munir is at the centre of crisis response, including a 20 March meeting with Shia clerics amid protests linked to Iran tensions and the Karachi consulate, which shows military leadership diverting bandwidth to domestic containment. On Afghanistan, the Eid ceasefire pause was secured after Saudi Arabia, Qatar, and Türkiye made direct requests to Pakistan’s leadership, with sources pointing to Munir as the key contact for Gulf mediators, even if the back channel details remain opaque. That positions the Field Marshal as the fulcrum for de escalation talks, tying domestic stability to border management.

Afghanistan’s 2026 humanitarian appeal is $1.71 billion and only 10% funded. With the Pakistan border closed and the Iran trade route under strain, delivery routes for assistance are narrowing fast. For multilateral partners, the combination of energy shock, security costs, and humanitarian strain in a single country at the same moment makes Pakistan another acute stabilisation case in the region this week.

WHAT TO WATCH NEXT WEEK

1. LNG cargo confirmation before April 14. If no cargo is secured in the next two weeks, the power sector faces a gas cliff rather than a gradual decline.

2. March remittance data from SBP, expected in early April. The anticipated Eid seasonal boost will likely produce a strong headline number. A flat or falling Gulf share during Eid season would be the first concrete evidence that Gulf employment conditions are already deteriorating.

3. Pakistan-Afghanistan ceasefire after Eid. Operation Ghazab Lil Haq has not been formally suspended. If fighting resumes at scale after Eid, Pakistan runs a border war alongside its energy crisis, with higher defence fuel costs, a closed trade route, and diverted government bandwidth. A durable ceasefire does not solve the energy problem but it removes one set of fiscal and operational pressures at a moment when Pakistan can barely afford the ones it already has.

POSTURE

For businesses, individual and sovereign investors, the signal is to tread carefully. Domestic E&P names with production upside, specifically OGDC and PPL, may offer a real hedge against the energy shock, but the dividend risk from the gas circular debt proposal and the deteriorating external balance make this a stock-picker’s market. It is not a broad Pakistan entry point for the next 30 to 60 days.

CONFIDENCE NOTE

Confidence is medium-high on the energy picture and medium on the remittance and security trajectories.

• The LNG supply data rests on primary ministerial testimony to a Senate committee, specific cargo counts, a named date, and corroborating price data from OGRA.

• The strongest rival view is that Pakistan's domestic renewable growth absorbs the LNG gap faster than the Senate briefing implied, producing a shorter and shallower power crisis.

• Energy Minister Leghari made this point in the same week, citing solar, wind, nuclear, coal, and hydro capacity. That view does not survive the 300-to-130 mmcfd cut already in place. But it gains force if April domestic generation data shows faster switching than expected.

• The main unknowns: whether spot LNG is secured before April 14; whether the Afghan ceasefire holds after Eid; and whether the circular debt dividend proposal becomes confirmed policy before the April earnings cycle begins.

Conclusion

The current conflict, which is pushing the world to an economic crisis not seen in years, will affect the Global South the most. Pakistan is buying fuel at prices it did not budget for, fighting a border war it cannot fully afford, and watching more than half of its foreign exchange lifeline sit inside an active conflict zone. The reserves are thin, the options are expensive, and the decisions being made right now, on spot LNG, on the ceasefire, on E&P dividends, will set the conditions for the next six months.

None of this is inevitable catastrophe. Domestic renewable growth is real. The Baragzai discovery adds to the supply side. Remittances have held. There is room to move. But that room narrows with each week the Strait of Hormuz stays closed, each day the Afghan border remains shut, and each aid package that reaches Kabul without accountability for where it goes next.

The gas clock started ticking this March. Watch what happens on April 14.

Until next week,

Syed Ali Shehryar

March 24, 2026.

Nothing here constitutes investment advice, nor a recommendation to buy, sell, or hold any asset. Consult a qualified financial advisor for decisions tailored to your situation.

This week, our focus was the convergence of a stalled IMF review, a UAE deposit expiring April 17, and Brent at $108.78 as the primary driver of balance-of-payments risk for every stakeholder with Pakistan exposure.

Three signals today shifted the base case from deteriorating to manageable: a five-day Eid ceasefire on the Afghan front, Pakistan's first oil tanker through Hormuz since the strait closed, and near-consensus on a revised IMF fiscal framework. All three need to convert into durable commitments within 30 days. None of them has.

Pakistan is now in a 30 to 90 day period of medium to high external financing risk. That risk has moved from even chance to likely because oil is higher, the UAE deposit still lacks a confirmed longer rollover, and tax collection has come in below plan. The buffer is real. SBP reserves are around 16.34 billion dollars, total reserves are around 21.6 billion dollars, and remittances reached about 26.5 billion dollars in the first eight months of FY26. That keeps Pakistan at step two of the pressure chain, not step four. It does not remove the chain.

What the market is already pricing

The KSE-100 closed at 154,292 on March 18, up 2.85 percent on the day after a seven-week selloff that took the index to an intraday low of 149,178 on March 16. From January 23’s all-time high of 189,556, the index has shed roughly 35,000 points or 16 percent, even as it remains up 28 percent year on year.

That gap tells you something precise. The year-on-year gain reflects the genuine macro stabilization Pakistan achieved through 2025. The 16 percent peak-to-date drop reflects the market repricing execution risk under an oil shock the IMF program was never designed for.

The selloff is concentrated in energy, banking, and fertiliser stocks, all of which carry direct exposure to the energy sector balance sheet and to IMF conditionality on circular debt.

The March 17 to 18 partial recovery came on value-buying, slightly easing crude, and news of the Afghan ceasefire. It does not represent a verdict on whether the underlying pressure has passed.

Energy debt and oil

Power sector circular debt stood at Rs 1.689 trillion at end-December 2025. The Rs 1.225 trillion bank refinancing deal moves that stock onto consumer bills via a Rs 3.23 per unit surcharge.

The IMF demanded zero net circular debt accumulation in FY26. Circular debt still rose Rs 75 billion in the first half of FY26 despite the bank deal.

On the gas side, total debt including late payment surcharges reached Rs 3.283 trillion in February 2026, with lawmakers warning the Standing Committee on Petroleum of systemic collapse.

The government is seeking IMF approval for a three-year gas circular debt retirement plan using OGDCL and PPL dividends. That approval has not come.

These numbers explain why Pakistan’s investment-to-GDP ratio stagnates at 13.8 percent in FY25, the lowest in Asia, against Bangladesh at 22 percent and India above 30 percent. Energy sector arrears consume bank balance sheets and crowd out private credit. Without investment above 20 percent of GDP, Pakistan’s sustainable growth ceiling sits at 3 to 4 percent per year. No amount of FBR revenue performance closes a structural investment gap caused by energy sector insolvency.

Oil crossing $100 and what it does to the IMF program

Oil above 100 dollars makes that problem harder and faster. Brent traded around 108.78 dollars on March 18 and hit as high as 109.95 intraday. Pakistan’s petroleum import bill was around 16 billion dollars in FY25, so sustained prices above 100 dollars can add several billion dollars a year to the import bill. That is why the June 2026 reserve target looks harder to reach without either a program adjustment or a weaker rupee.

The domestic binding constraint is still FBR performance. IMF and Pakistan appear close to a revised target, but staff level agreement has not been announced and governance questions remain live, including over asset disclosure changes and the UAE deposit rollover. That matters because the next full IMF mission is expected around May, while the April financing calendar arrives first..

The five-step chain and where Pakistan sits on it

Hormuz is the trigger that turns high oil into a live Pakistan problem. Pakistan’s MT Karachi made it through the Strait after routing close to the Iranian coast and entered Pakistani waters carrying crude, which shows selective access is possible. But one successful tanker is proof of access, not proof of volume. It does not normalize the import system.

The five step chain now looks like this:

Oil stays above 100 dollars and pushes the current account back toward stress. The rupee then has to absorb part of that pressure.

Imported inflation rises from the current 7 percent rate, which reduces room for rate cuts and may force SBP to stay tight for longer. That weakens private credit and hiring.

Then tariff pressure, slower jobs growth, and a tighter political mood narrow the room to deliver IMF conditions. After that, the next tranche gets harder, bilateral confidence in rollovers weakens, and sovereign funding costs rise.

Pakistan appears to be at step two today. The rupee is still holding near 279 to the dollar because remittances remain strong and reserve discipline has held. Step three arrives within 60 to 90 days if oil stays high and shipping access remains selective. The Eid ceasefire matters because it briefly lowers military fuel demand and opens a narrow diplomatic window on the Afghan side. The higher order point is that Pakistan does not need a full macro break to lose room. It only needs step three to harden before the financing pieces are locked in.

What to look out for

1. Ceasefire with Afghanistan: Whether the five day Eid ceasefire with Afghanistan survives past March 23 or collapses back into strikes, drone attacks, and border closure logic. If it holds even briefly, Pakistan gets lower military fuel burn, a small fiscal breathing space, and a narrow chance to reopen part of the trade corridor that has been effectively shut since October 2025. If it breaks, border provinces lose more trade, exporters keep absorbing losses, and the state pays for a hotter western front while oil is already expensive.

2. Strait of Hormuz: Whether it remains a selective access route or becomes a harder choke point. Pakistan’s MT Karachi getting through proves access is possible under controlled conditions, likely because Tehran still sees some value in letting Pakistan remain usable as a neutral channel. But one ship is not throughput. If passage stays selective, Pakistan can muddle through with higher cost. If passage tightens further, the oil problem turns from price shock into physical supply stress.

3. LNG: Senate testimony says LNG may not be available after April 14 because Qatari supply has been disrupted, with only two of eight March cargoes arriving and April cargoes at risk. While a crude oil shock hurts the external account, an LNG shortfall hits power generation, fertiliser feedstock, and industrial output at the same time.

4. Flow of remittances: Arab countries accounted for 53.3 percent of remittances in the first eight months of FY26, while the UAE and Saudi Arabia alone sent about 696 million dollars and 685.5 million dollars in February. That means the same region creating Pakistan’s oil and deposit stress is also the region holding up the rupee. If Gulf infrastructure attacks continue, the old assumption that remittances adjust only with a long lag becomes less safe because physical disruption can hit labour demand and payment channels faster than a normal oil cycle would.

5. Pak-Saudi Mutual Defence Pact: If Riyadh formally calls on the defence agreement, Pakistan’s problem changes from managing external financing to managing alliance choice under fire. The likely opening move would be limited security help such as intelligence, training, air defence, or maritime support rather than a large combat deployment, but even a limited move could reduce Iran’s willingness to tolerate Pakistani shipping access and raise sectarian, proxy, or cyber pressure inside Pakistan. That is a fast path from step two of the current chain toward step four, because it compresses decision time and shrinks neutrality.

What this means for people

Watch fuel, electricity, gas supply, and hiring. The direct risk is not a sudden collapse. It is a squeeze in living costs and slower income growth if oil stays high and LNG cargoes do not resume.

What this means for investors

The market is telling you that stabilization was real, but that the next leg depends on execution. The right distinction is not bullish or bearish. It is exporters and low leverage firms versus import heavy and energy linked balance sheets.

What this means for businesses

The watch items are freight, power, gas, working capital, and customer demand. If LNG shortages start after April 14 and Gulf routes stay expensive, firms will feel it first through delays, margins, and cash conversion cycles rather than through a dramatic macro headline.

Pakistan is watching live US and Israeli missiles hit Iran while actively fighting militant Afghanistan. It has moved from warning Kabul to bombing targets in Kabul, Nangarhar, Khost, and Paktika within days of fresh attacks at home. For leaders with exposure to Pakistan, the question is “How far can a state fighting a live border war, under an Iran conflict and IMF rules, still honour contracts and keep macro gains.” The core problem this week is how war on two western arcs and oil risk reshape Pakistan’s corridors, not whether Pakistan is willing to hit back.

This Week In Brief

Pakistan has carried out intelligence led airstrikes against seven camps in Nangarhar, Paktika, and Khost, then widened fire under Operation Ghazab Lil Haqq after a month of suicide attacks in Islamabad, Bajaur, and Bannu. Kabul calls this a breach of its territory; Islamabad calls it overdue punishment for TTP and allied groups that plan from Afghan soil. At the same time, the United States and Israel have hit Iranian command and missile sites, Iran has replied with drones and missiles, and Iran backed Houthis have again threatened Red Sea routes, lifting oil by about 3 to 4 percent and pushing 2026 price forecasts higher.

FX reserves at the State Bank are about US$16.2 billion, total liquid reserves are above 21 billion, January CPI is 5.8 percent inside the 5 to 7 percent target band, and Islamabad is on course for the next IMF review. That cuts short horizon default and pure FX crisis risk into the “unlikely” band. The big swing is elsewhere: regional war and oil pressure now sit around 60 to 70 percent (likely to very likely), and the Afghanistan–Pakistan clash has moved from sporadic fire to open war with stated intent to “eliminate” TTP leadership wherever found. India has not shifted posture this week, so a hot eastern front remains very unlikely, but a probe in a stressed moment would carry high cost if it came.

Governing Thought And Posture

Pakistan is in a 12 month stretch of medium risk driven by three things: regional war and oil, AfPak conflict, and the need to stay inside IMF lines while fighting live enemies. Regional war and oil stress is now roughly 60 to 75 percent (likely to very likely) after strikes on Iran, new Red Sea threats, and higher 2026 oil projections. Cross border security risk sits in the same band after 699 attacks in 2025, a demarche over Bajaur, and now cross border strikes and Operation Ghazab Lil Haqq. Short horizon default risk has dropped to roughly 25 to 35 percent after IMF board approvals and steady reserve gains.

This shifts risk from “will Pakistan pay?” to “which corridors and sectors still make sense under war, oil, and coercive strikes.”

Pakistan is investable this week only on a selective and hedged basis: the state has shown it will hit back hard westwards, but that same fight plus Iran war and shipping stress tighten every corridor.

This Week’s Risk Shifts

Regional war and oil linked external stress – ⬆️

• Prior: 45–55 percent (even chance)

• New evidence: US and Israeli strikes on Iran’s leadership and missile infrastructure, Iran’s drone and missile reply across the region, and Iran backed Houthi threats have pushed oil up by about 3–4 percent and lifted 2026 price forecasts by nearly 2 dollars a barrel.

• Updated: 60–75 percent (likely to very likely).

• Impact: Higher fuel and freight bills, rougher current account math, and more pressure for tariff hikes at home.

Afghanistan–Pakistan conflict – ⬆️

• Prior: 45–55 percent (even chance) that clashes would stay at low burn.

• New evidence: Pakistan has issued a demarche over Bajaur, then carried out intelligence based airstrikes against seven TTP and ISKP camps in Nangarhar and Paktika, and then widened fire and ground moves under Operation Ghazab Lil Haqq; Afghan forces have replied, and both sides speak of war and large enemy losses.

• Updated: 60–70 percent (likely) that fighting stays live over the next year.

• Impact: Higher security spend, more risk premium, and slower timelines for assets and routes in KP, merged districts, and Balochistan.

Two front scare with India layered on west – ↗️(slightly up)

• Prior: 10–20 percent (very unlikely).

• New evidence: No new Indian build up or clash this week, but Pakistan is now in open fighting on the western front while Iran war pulls in US and Gulf assets, which reduces slack in the system.

• Updated: 20–30 percent (still unlikely).

• Impact: Even a short India scare on top of this would hit PSX harder than the recent US–Iran moves, widen spreads, and could force FX and trade steps that undo IMF gains. This remains a scenario, not a base.

Near term default and pure FX crisis – ⬇️

• Prior: 55–65 percent (likely) during the 2022–23 crunch.

• New evidence: IMF board cleared the second review and released 1.2 billion dollars; staff and local work show Pakistan broadly on track, and SBP reserves now stand near 16.2 billion dollars with total liquid reserves over 21 billion and targets above 17 billion by mid 2026.

• Updated: 25–35 percent (unlikely).

• Impact: Lower odds of outright payment stop in the next year even under war and oil stress.

What’s Moving, What’s Not (Attention vs Movement)

In this matrix, “attention” is media and commentary; “movement” is prices and real flows. Attention is high when an issue dominates major outlets, low when only a narrow crowd watches it. Movement is high when prices or real indicators shift by more than about 2 percent; low when they barely move.

Outside Pakistan: Global And Regional Moves

Global rates remain high, while Iran war adds a fresh layer of oil and risk premia. For Pakistan this pulls on the current account, budget, and IMF path by raising the fuel bill just as the state tries to clean up power sector arrears and hold inflation near 5–7 percent.

Red Sea raids and threats have cut traffic and pushed ships around Africa, adding days and cost to voyages to and from Europe. Pakistan’s exporters and importers who use these routes face higher freight and insurance; if firms and state bodies do not adjust, that cost shows up as thinner margins or higher prices.

Afghanistan–Pakistan now sits as a live regional flashpoint: Kabul gives cover and space to TTP and tells Pakistan to solve TTP “internally”, while Pakistan actively engages, foregoing the previous passive stance, the Durand Line and declares its patience over. India has stayed outside this fight so far, but closer Kabul–Delhi links and Afghan use of Indian equipment keep Delhi in the background of Islamabad’s calculus.

Inside Pakistan: Politics, Macro, Policy, Society

On the geopolitical side, Pakistan has moved from demarches and warnings to sustained cross border force, active protection of its sovereignty, and has the evidence of Afghan Taliban being partners of TTP and as part of a hostile network that also uses India backed proxies. This hardens public support for action in the west and signals that Islamabad will no longer treat Afghan soil as off limits when TTP kills its soldiers and citizens.

Domestic politics remain under strain from years of unrest, legal fights, and elite rifts, but there is no fresh collapse or new development this week. War pressure can both rally support and deepen mistrust, depending on how losses and costs are shared.

Macro numbers are better than in 2022–23: reserves are above US$16 billion at SBP, total liquid above US$21 billion; CPI is 5.8 percent; SBP and IMF see growth picking up if oil and security stay within bands. War and oil now test that story.

What This Means For You

For private investors, the main risk now runs through energy, freight, and corridor security rather than pure default. Time to be cautious on assets that need smooth Afghan trade, border access, or cheap regulated fuel.

For public markets, US–Iran tension and AfPak war have already produced some of the steepest KSE 100 swings of the past year. We’ll see FX hedges; bond duration kept short to medium; an equity tilt toward banks, exporters, and firms with pass through of fuel and freight.

For governments and IFIs, the question is how to keep pressure on tariffs and tax while Pakistan fights real enemies and shields the poorest from war and price shocks. The administration will need to link cash to concrete steps on energy and tax; build in more support for social cash and border zones; work channels with Kabul and Doha to curb TTP without asking Pakistan to “absorb” endless fire.

For corporates, supply chains that rest on one port, one sea lane, or one border crossing now carry extra risk, and fuel touches every line of cost. It is time to diversify routes and ports; add stock of key imports; change contracts to share fuel and freight risk; update plans for air space closure, target attacks on depots, and strikes on telecom links.

For households, the mix of war, oil, and domestic politics means mid single digit inflation with spikes on fuel, power, and some food, plus some risk of outages and unrest in KP, Balochistan, and big cities.

What To Watch Next Week

Three tracks will tell you most about how Pakistan’s state handles a real two front squeeze: the next IMF review, the course of Operation Ghazab Lil Haqq and Afghan replies, and energy pricing under war.

If Islamabad clears the next IMF review on time and still raises tariffs in line with the plan, markets will see that even in war the state can keep its macro word. If AfPak fighting widens or Kabul strikes deep inside Pakistan, corridor and project risk will jump again and call for a tougher stance from partners toward Kabul. If oil stays high and tariffs stall, circular debt and hidden bank risk will grow back.

The pattern this week is clear. Moves that ride on external anchors and narrow teams, like IMF reviews and cross border strikes, still happen. Moves that need broad cover at home under high prices, like deep energy and tax changes, slow down.

Interesting next few days. Until then, let’s pray for peace and better times.

For: PE/VC [✓] | Public Markets [✓] | Corporates [✓] | Govts/IFIs [✓]

Pakistan is simultaneously over-governed and under-governed, and investors feel both. For leaders with exposure to Pakistan, the hard part this week is not spotting noise in headlines, but judging how much room the state really has on funding, security, and digital control before something breaks. The core problem is simple to state and hard to price: can Pakistan sustain a narrow path of “managed stress” without tipping into another balance-of-payments scare or political shock. The weekly brief covers this, through my lens and based on the signals I found worth tracking for the week. It’s something new I am trying and you will see it expand, improve and cover more dimensions in the future iterations. I’ll wait for your feedback!

This week in one page

Stabilization’s Split Screen

IMF momentum holds as security deterioration widens the execution gap

This week, our focus was on the structural divergence between Pakistan's IMF-tracked macro stabilization and its rapidly deteriorating security environment as the twin drivers of risk and opportunity for every stakeholder with Pakistan exposure.

Pakistan is in a period of constrained stability where formal default risk looks lower than in 2022–23, but external funding, domestic politics, and security still sit near the edge of what markets will accept. FX reserves have improved from the worst of the crisis but remain thin for an import-dependent country, which means any oil spike, delay in official inflows, or surge in outflows can still reopen the stress channel fast. Inflation has eased from its peak yet stays high enough to hurt real incomes and keep pressure on the central bank, while growth remains weak, so the sense of “macro normalisation” feels fragile rather than secure.

For investors and firms, the main shift relative to the previous crisis phase is in the shape of risk, not its level. Short-horizon default or convertibility fear has eased, but medium-horizon worries about execution of tax and energy reform, delivery on privatization, and the durability of the current political settlement matter more. The state has bought time; it has not bought much room to reverse course on tough measures without reopening IMF and market concerns.

Risk posture for Pakistan

A reasonable base case for early 2026 is that Pakistan remains investable on a selective and hedged basis, with country risk still priced above many frontier peers but not at outright distressed levels. That means capital allocators have to decide where controlled exposure still pays, rather than whether to exit the country entirely. In simple terms, the dominant constraint is external balance pressure, with political and security constraints sitting just behind it.

Funding risk now behaves less like a single cliff event and more like a series of rolling tests. Each IMF review, each large Eurobond or bilateral repayment, and each budget cycle tests whether Islamabad can keep delivering unpopular measures on taxes, energy tariffs, and SOE reform without triggering broad unrest or a breakdown in the coalition. If those measures stall, the next test is rarely far away: rating agencies, local yields, and the currency tend to move well before official default comes into view. Nonetheless, IMF confirmed its third review mission from February 25 to conduct discussions on the third EFF review and second RSF review. The IMF publicly stated that Pakistan’s reform implementation has helped “stabilise the economy, rebuild confidence,” and described fiscal performance as “strong” with headline inflation “relatively contained”. FX reserves stand at $16.197 billion at SBP and $21.3 billion total. CPI inflation at 5.8% in January 2026 remains within SBP’s 5–7% target range. PKR steady at 279.52 per USD. Primary surplus tracking at 1.3% of GDP.

Second order effects matter more than before. If the government leans too hard on energy and tax hikes to meet fiscal targets, it squeezes households and small firms, which then raises the risk of protests and weakens the political mandate for reform. That in turn makes reform delivery slower and noisier, which pushes up the risk premium on new funding, feeding back into the original fiscal problem. The “game” for investors is no longer to guess whether Pakistan will reform, but to judge how much reform can pass before politics and security push back.

What’s Moving, What’s Not

For those new here: Attention measures media coverage intensity, with High being more than 10 media mentions. Movement captures observable market or operational impact, with High being more than 2%. Mismatches between attention and movement often signal mispricing or early trends worth tracking.

What moved outside Pakistan

The external backdrop for Pakistan remains tight. Global rates are off their peak but stay high enough that marginal EM borrowers pay a steep price for market access, and Pakistan is still in the group where new hard-currency issuance competes poorly with concessional and bilateral flows. That keeps the country dependent on IMF support, Gulf partners, and Chinese rollovers, and it raises the bar on any move that would alarm those creditors, such as loose fiscal policy or erratic FX management.

Energy and regional security link back into this. Any firm upward move in oil prices quickly reopens the import bill channel and strains the current account, especially if growth recovers even modestly and pulls in more imports. Tension across the Gulf, in the Red Sea, or around Iran increases not only headline risk but also shipping costs and insurance premia, which show up in Pakistan’s trade bill and can bleed into domestic fuel and food prices. Border security issues with Afghanistan, or renewed friction with India, raise the prospect of higher security spending and deter some types of FDI, especially in exposed regions.

In totality, the chain runs through financing conditions. If global risk appetite worsens or sanctions and compliance rules tighten around any of Pakistan’s main partners, those partners may offer less generous rollovers or demand stricter conditions. That then narrows Islamabad’s room to slow reforms ahead of elections or in response to protests, and raises the chance of abrupt policy moves that unsettle investors.

What moved inside Pakistan

Domestic politics in early 2026 still revolve around a hybrid system cooperating and working in tandem for reforms to progress. Coalition management, court decisions on election-related cases, and informal civil–military understandings combine to shape the “band” in which policy can move. That band is not wide. Any perception of mass disenchantment, especially around prices, jobs, or perceived unfairness in accountability, quickly hardens the political constraint and slows structural measures.

On macro policy, the core story remains familiar. Fiscal consolidation relies on higher energy tariffs, broader tax effort, and some restraint on provincial and federal spending. Each move has direct distributional effects: higher power and fuel prices push up costs for industry and households; stricter tax collection meets resistance from trade and professional lobbies; cuts in development spending hurt patronage networks that politicians rely on. When this resistance rises, the temptation grows to protect some groups with exemptions or delays, which then weakens the fiscal path underpinning the IMF programme and market confidence.

Security risk is no longer a pure frontier issue confined to borderlands. Attacks in Khyber Pakhtunkhwa and Balochistan, pressure on Chinese-linked projects, and sporadic urban incidents all affect investor sentiment and the cost of doing business. Even if headline casualty numbers stay below past peaks, the perception that Western or Chinese personnel are at higher risk feeds through into higher security costs, tougher insurance, and more demanding terms from foreign sponsors. Over time, this can tilt the project mix toward those backed by states willing to absorb higher security costs, reducing the space for purely commercial deals.

Digital and information controls add another layer. Moves toward tighter content regulation, possible firewalls, or data localization rules may feel manageable from a domestic political angle, yet they raise reliability and compliance concerns for IT and BPO clients abroad. The first order effect is higher operational friction for exporters. The second and third order effects are more subtle: some clients may quietly diversify away, local firms may find their valuations discounted because of perceived “regulatory outage risk,” and the country’s narrative as a services exporter may erode even without a single headline ban.

Implications for decision makers and investors

For PE and VC funds, the main risk channel has shifted from sudden macro collapse to exit and convertibility risk over a 5–7 year horizon. Local-currency returns can still be attractive in selected consumer, export, and infrastructure-adjacent plays, but sponsors need to assume chunky FX moves at exit and consider partial natural hedges through USD or GCC revenue links where business models allow. The biggest error now is not entering Pakistan at all, but misjudging which sectors and partners can operate under a regime of tight FX, high energy costs, and intermittent regulatory jolts.

Public markets investors face a different balance. Sovereign and quasi-sovereign paper rewards careful duration and FX management more than heroic yield-chasing, with scope to earn carry when IMF and bilateral flows are on track but with sharp drawdown risk around any hint of programme slippage or security shock. Equity investors need to separate firms that can pass on higher energy and tax costs and access FX for inputs from those that sit at the mercy of controlled prices or import restrictions. In both credit and equity, state actions around SOE reform and privatisation will continue to create episodic entry points, but execution risk and political timelines matter more than headline plans.

For corporates already in Pakistan, the task is to rebase operating models for a world of higher energy tariffs, more assertive tax enforcement, and possible digital constraints. That means revisiting pricing power, supply-chain resilience, and local vs imported input mixes, along with hard-headed continuity planning for connectivity, security, and logistics. Foreign firms that treat Pakistan as a marginal market with thin management attention will struggle; those that treat it as a testbed for operating under constraint can still earn healthy returns.

Governments and multilaterals have to weigh their own constraints. Donors and IFIs want credible reform and social stability at the same time. Too much pressure on tax and tariff measures without support for social protection and service delivery risks fuelling unrest and weakening reform coalitions. Too little pressure risks another drift into arrears and under-collection. The most useful contribution now is less about new flagship loans and more about tightening the links between disbursements, delivery on core reforms, and shielded support for the poorest.

What to watch next

Three reform tracks offer the cleanest read on state capacity over the next few quarters. First, energy pricing and circular debt: whether Islamabad can keep raising tariffs and cleaning up collections without resorting to blanket subsidies again when protests bite. Second, tax and documentation: whether the authorities can broaden the base into under-taxed sectors rather than leaning again on already compliant segments. Third, SOE reform and privatisation: whether deals in power, aviation, and other core sectors actually close, not just move through cabinet approvals.

The second and third order questions follow from each track. If energy reform stalls, arrears will climb again, banks’ exposure to the power sector will deepen, and fiscal space for social spending and security will narrow, which then raises both social and security risk. If tax reform remains narrow, the state will keep “taxing inflation” through energy and indirect taxes, which further erodes trust and fuels informalisation, reducing the base in future. If SOE reform fails, private capital will demand higher returns or walk away, leaving more of the burden on already stretched public banks and external partners.

Over time, a pattern is likely to stand out. Actions that need deep political cover and long execution chains, such as across-the-board tax documentation, will move slowly or stall. Measures that can be pushed through executive orders and small teams, such as targeted digital controls or selective tariff tweaks, will move faster. For investors, that means technical reform design matters less than the ability to read constraints early, structure deals around them, and move fast when narrow execution windows open.

Closing: capability, not just calls

Why do smart funds still misprice South Asia risk? In Pakistan’s case, the answer now lies less in misreading the odds of any single event and more in underestimating how narrow the operating band has become for the state and for firms. Leaders with exposure here need to assume that tight funding, patchy security, and intrusive regulation are the baseline, not an exception that will fade.

Guessing the exact date of the next IMF review or court ruling is no longer the edge. The edge lies in building a repeatable way to read how Pakistan’s constraints move from week to week and quarter to quarter, and then wiring that reading into capital allocation, operations, and risk controls. Teams that do this tend to make two better moves: they cut avoidable damage earlier when the evidence turns, and they see where future revenue, influence, and supply security can still grow even as the map shifts around them.

This week, three questions are worth an hour of serious work.

1. Which single fault line would hurt us most if it moved faster than we expect: FX, security, or digital control?

2. Where are we still assuming Pakistan “calms down” within a year, despite the evidence of tight constraints across funding, politics, and security?

3. What is one decision we can pre-commit now, with a clear trigger such as an oil spike, border closure, or FX band break, so we are not improvising under stress?

The tension that opened this brief still holds. Pakistan is over-governed in rules and under-governed in delivery, and investors feel both. Those who accept that this environment will not soften on the timeline most plans assume, and who build the skills, systems, and judgement to turn Pakistan’s noise into a steady signal, are the ones most likely to still be writing cheques and building here when others have cycled out.