Finance ministry warns rising oil prices may fuel inflation, widen import bill

Says current account deficit likely to remain manageable, but rising oil prices pose risk to import bill

The Ministry of Finance warned on Tuesday of a significant increase in inflation due to the ongoing Middle East conflict, projecting inflation for the current month to remain between 7.5-8.5%.

The ongoing conflict between the United States, Israel and Iran has already driven up global energy prices, further straining the global economy. An earlier United Nations report highlighted that the effective closure of the Strait of Hormuz has contributed to rising food and fertiliser prices. This trend is expected to disproportionately affect poorer nations.

According to the ministry’s monthly economic outlook, while it was pursuing prudent measures — including maintaining adequate petroleum reserves, managing energy demand, and adhering to fiscal austerity — it reiterated that inflation was expected to remain within the 7.5-8.5% range for March.

“The FAO Food Price Index (FFPI) averaged 125.3 points in February 2026, up by 1.1 points from its revised January level,” the report said, marking the first increase after five consecutive monthly declines.

It said rising global oil prices could increase industrial costs and push up the import bill. However, despite global uncertainty, the economy was expected to remain stable.

“The current account deficit is likely to remain manageable, while rising oil prices pose a risk to the import bill,” the ministry said, adding that high inflows of remittances were expected, particularly due to increased transfers associated with Eid.

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Despite the recent global crisis, the ministry said it remained optimistic about Pakistan’s economic outlook, noting that the economy was likely to remain resilient in the coming months.

“The latest indicators suggest that the economy is better positioned to absorb external shocks and maintain overall resilience in the coming months,” it added.

However, the ministry warned of potential petroleum supply disruptions due to the war in the Middle East, describing them as among the largest in the global oil market. It said restoring stability in the global oil market would depend on the resumption of regular shipping transit through the Strait of Hormuz.

The report stated that during the first eight months (July to February) of the current fiscal year, the fiscal deficit stood at Rs64.7 billion, while the primary balance was recorded at Rs4,151b.

The ministry said the current account deficit narrowed to $700 million during July-February, while foreign direct investment declined by 33% to $1.19b. 

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It added that imports of textile machinery and construction materials had increased, while the government continued efforts to maintain petroleum reserves and focus on controlling energy demand and reducing expenditures.

On the external front, the ministry said the current account deficit was expected to remain under control, noting that remittances increased by 10.5% during the first eight months of the fiscal year.

Remittances totalled $8.12b during July-February, while exports declined by 5.4% to $20.7b during the same period. Imports fell by 8.8% to $41.8b over the eight months.

Total foreign investment stood at $704m, while tax revenue increased by 10.6% year-on-year to Rs8,122b during July-February. Non-tax revenue rose by 7.4% to Rs4,041b.

The fiscal deficit for the period stood at Rs64.7b, while the primary balance was recorded at Rs4,151b.

The report further noted that agricultural credit disbursement increased by 11% during the first seven months of the fiscal year, reaching Rs1,649b during July-January. During the same period, banks provided Rs887b in loans to the private sector, while large-scale manufacturing recorded a growth of 5.75%.