The IMF warns that the Iran conflict is disrupting energy production, shipping, tourism and trade, with a recovery projected in 2027.
ISLAMABAD — WEB DESK: The International Monetary Fund (IMF) has forecast that economic output across the Middle East, North Africa and Pakistan will contract by 1.3% in 2026, warning that the conflict involving Iran is disrupting energy production, shipping, tourism and international trade.
The forecast, reported by Reuters on October 22, reflects the uneven economic impact of the conflict, with oil-exporting countries facing particularly severe pressure from interruptions to energy production and maritime transport. The IMF expects the broader regional economy to rebound in 2027, with growth projected at 6.6%, although output is expected to remain below earlier projections.
The 1.3% contraction applies to the wider regional grouping that includes Pakistan. It should not be interpreted as a forecast that Pakistan’s economy alone will shrink by that amount.
Iran conflict puts pressure on regional economies
The IMF said the conflict has affected regional economic activity through several channels, including reduced energy production, disrupted shipping routes, weaker tourism and uncertainty affecting trade and business confidence.
The consequences vary considerably across countries. Economies dependent on oil and gas exports are more directly exposed to interruptions in production and transportation, while oil-importing countries have shown greater resilience, according to the fund.
The disruptions have also increased the risk of higher energy costs, which can feed into transport expenses, production costs and consumer prices.
Recovery expected in 2027, but risks remain
The IMF’s baseline forecast assumes that the conflict will ease in early 2027 and that trade will gradually return to normal during the year.
Under that scenario, regional output is expected to grow by 6.6% in 2027. However, the projected rebound does not necessarily mean that economies will fully recover the output lost during the conflict or return to their pre-war growth paths.
The fund cautioned that further disruptions to energy production and key trade routes could push energy prices higher and weaken the outlook. Tighter global financial conditions could add to the pressure on governments and businesses.
What the forecast means for Pakistan
For Pakistan, the regional outlook highlights potential risks associated with higher energy import costs, shipping disruptions and volatility in international commodity markets.
As an energy-importing economy, Pakistan can face additional pressure when global fuel prices rise. Higher import bills can affect foreign-exchange requirements, inflation and the cost of electricity, transport and industrial production.
However, the IMF’s regional contraction figure does not establish Pakistan’s individual growth rate. A country-specific assessment requires the fund’s separate projections for Pakistan and consideration of domestic economic conditions.
The IMF has noted that remittances, tourism, favourable financial conditions and policy measures have helped cushion some oil-importing economies against the shock. The extent to which those factors support Pakistan will depend on domestic and external developments.
IMF urges policymakers to preserve stability
The fund has called on policymakers to maintain price stability, preserve fiscal sustainability and central bank independence, and pursue structural reforms that can improve productivity and employment.
These priorities are particularly relevant during periods of heightened uncertainty, when governments may face competing demands to protect households from higher prices while maintaining sustainable public finances.
The outlook remains dependent on the duration of the conflict and the speed at which energy production and international trade recover.
