Pakistan talks focused on Middle East tensions, financial tightening, external economic impact: IMF

The International Monetary Fund (IMF) said it is in talks with Pakistan for the third programme review under the Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF), with discussions focused on external pressures affecting the country’s economy.

Speaking at a press briefing in Washington, D.C., IMF Communications Director Julie Kozack said, “We are currently in discussions with the authorities for the next review under the program.”

She said the review is assessing multiple developments, adding that discussions will focus on all of the developments that may affect Pakistan’s economy, including the situation in the Middle East, the increase in oil prices, increase in fertiliser prices.

“And obviously those discussions will be focused on, you know, all of the developments that may affect Pakistan’s economy, including obviously the situation in the Middle East, the increase in oil prices, increase in fertilizer prices, all of the different parts of the economic impact, including tightening of financial conditions, how all of that may affect Pakistan,” Ms Kozack said.

She noted that broader financial conditions are also part of the assessment, referring to “tightening of financial conditions” and how these factors may influence Pakistan’s economic outlook.

She added that the IMF team would provide further clarity once discussions conclude, stating, “We’ll hear from the team as those discussions come to a conclusion.”

Addressing the wider global impact of the conflict, she said disruptions have already emerged, noting that “the closure of the Strait of Hormuz has cut off access to roughly 20 per cent of the world’s oil and seaborne LNG supplies.”

She added that energy infrastructure damage in the Gulf region has disrupted production, while “oil and gas prices… have increased by more than 50 per cent over the last month to over $100 a barrel.”

The IMF official said fertiliser shipments have also been affected, warning that supply disruptions and transport constraints could lead to increases in food prices depending on the duration of the conflict.

Explaining transmission channels, Kozack said higher energy prices could raise inflation globally, noting that “higher energy prices will lead to higher headline inflation” and may also affect inflation expectations.

She added that financial markets have already reacted, stating that “global stock prices have declined, and bond yields have increased, volatility has increased, the U.S. dollar has appreciated, and the currencies of a number of emerging economies have weakened.”

Providing a rule of thumb, she said that a sustained rise in oil prices could have measurable macroeconomic effects, noting that “for every 10 per cent increase in the oil price, this could lead to a 40 basis point increase in global headline inflation and a fall in global output.”

Kozack said the overall impact would depend on how long the conflict persists, adding that a detailed assessment will be included in the IMF’s upcoming World Economic Outlook report.

She added that the Fund is engaging with member countries and stands ready to provide support if needed, although no formal requests for emergency financing have been received so far.