IMF warns Pakistan over energy risks

The International Monetary Fund (IMF) has warned that escalating tensions and war in the Middle East could increase pressure on Pakistan’s economy through higher global commodity and energy prices, urging authorities to continue difficult energy sector reforms to preserve macroeconomic stability. In its statement issued after approving the latest review of Pakistan’s economic reform programs, the IMF said the country has managed to maintain economic stability despite a “more challenging and highly uncertain external environment since the onset of the war in the Middle East.” The lender noted that rising global commodity prices have already started passing through to domestic energy prices, contributing to inflationary pressures in Pakistan. Against this backdrop, the IMF emphasized that recent gains in the energy sector must not be reversed and called on the government to continue adjusting fuel, electricity, and gas prices in line with actual costs. “In an environment of high and volatile commodity prices, recent improvements in energy sector finances need to be sustained by keeping domestic fuel, electricity, and gas prices in line with costs,” the IMF said. The Fund stressed that targeted support should continue for vulnerable consumers, but broad untargeted subsidies could undermine fiscal stability and delay reforms. Pakistan remains heavily dependent on imported energy, making the economy highly vulnerable to geopolitical tensions in the Middle East, particularly disruptions in oil supply routes or sharp increases in crude oil prices. The IMF warned that maintaining reform momentum in the energy sector is critical not only for controlling fiscal pressures but also for improving Pakistan’s competitiveness and restoring investor confidence. According to the IMF, continued reforms aimed at reducing inefficiencies and controlling costs across the energy chain will help safeguard the sector’s long-term viability. The lender has repeatedly identified Pakistan’s circular debt crisis and power sector losses as major structural weaknesses weighing on the economy. The IMF also linked energy reforms with broader macroeconomic stability goals, including inflation control, reserve accumulation, and fiscal consolidation. Pakistan recently secured around $1.32 billion in fresh IMF funding after the Executive Board completed the third review under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF). The IMF acknowledged that Pakistan’s economic reform program has delivered progress in stabilizing the economy, with GDP growth accelerating, inflation remaining relatively contained, and the current account broadly balanced during the first nine months of FY26. However, it cautioned that external risks remain elevated due to ongoing geopolitical tensions and volatile international commodity markets. The Fund said Pakistan must continue pursuing disciplined macroeconomic policies alongside structural reforms to strengthen resilience against future external shocks. In addition to energy reforms, the IMF called for stronger tax collection, privatization of state-owned enterprises, improved governance, and continued monetary discipline by the State Bank of Pakistan.