Economic Affairs Division Warns of Economic Risks from Renewed US-Iran Conflict

The Economic Affairs Division (EAD) on Wednesday warned that any renewed escalation in the US-Iran conflict could negatively impact Pakistan's economy through higher energy prices, rising inflation, increased external financing needs and slower economic growth.

 

Briefing the National Assembly Standing Committee on Economic Affairs Division, Parliamentary Secretary Zeb Jaffar and Federal Secretary Humair Karim said Pakistan entered 2026 with improving macroeconomic fundamentals. However, the recent Middle East conflict and the temporary closure of the Strait of Hormuz disrupted global energy markets, pushing up oil prices, straining supply chains and adding inflationary pressures.

 

The EAD said that following the ceasefire and the Islamabad Memorandum of Understanding, international oil prices had moderated and maritime trade had largely resumed. However, it cautioned that regional uncertainties remain, and any renewed conflict could once again weigh on Pakistan's economic outlook.

 

During the meeting, the committee also reviewed the proposed financing arrangement for the Lyari Elevated Freight Corridor (LEFC) and raised concerns over the substantial difference between the project cost estimated by the National Highway Authority (NHA) and the financing proposal submitted by the Korean Exim Bank.

 

Lawmakers noted that the proposed financing could nearly double the project's estimated cost and stressed the need to secure the most cost-effective funding option in the national interest.

 

The committee recommended that the EAD secretary hold consultations with the NHA, the Ministry of Planning, Development and Special Initiatives, and the Karachi Port Trust (KPT) to develop a mutually agreed and financially sustainable financing model for the project.

 

The committee also expressed concern over delays in the Karachi Greater Water Supply Project (K-IV), noting that only Rs10 billion had been allocated against the project's estimated requirement of Rs78 billion. Members warned that the funding shortfall could delay the project's completion and the provision of adequate water supply to Karachi.

 

It recommended that the Ministry of Water Resources and the K-IV project director provide a detailed briefing at the committee's next meeting on the project's progress, financing needs, implementation timeline and measures being taken to address existing challenges.

 

The committee was also informed that the National Highway Authority has awarded the contract for Tranche-III of the Central Asia Regional Economic Cooperation (CAREC) project, with completion targeted by December 2027.

 

Chaired by Mirza Ikhtiar Baig, the committee urged the government to carefully evaluate all financing options for the multi-billion-rupee LEFC project before committing to stringent loan terms offered by the Korean Exim Bank.