Managing Oil Shocks: Pakistans Fiscal Risks and Policy Choices

Nasir Iqbal, Shahzada M. Naeem Nawaz and Amna Riaz
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Nasir Iqbal: Pakistan Institute of Development Economics, Islamabad
Shahzada M. Naeem Nawaz: Pakistan Institute of Development Economics, Islamabad
Amna Riaz: Pakistan Institute of Development Economics, Islamabad

No 2026:55, PIDE Policy View Point from Pakistan Institute of Development Economics

Abstract: The current oil price shock, emerged because of Israel-US-Iran war and its spread over the Gulf region, can have serious consequences on the fiscal consolidation efforts of the Government of Pakistan. The federal primary surplus, budgeted at Rs. 1,706 billion (1.3% of GDP), declines sharply across fiscalrisk scenarios. Under a moderate shock ($100/bbl), it falls to Rs 1,002 billion (0.7% of GDP), a reduction of Rs 704 billion (-0.6 percentage points). In a severe shock ($120/bbl), it drops to Rs 821 billion (0.6% of GDP), Rs 885 billion (-0.7 pp). In an extreme scenario ($144/bbl), it further declines to Rs 781 billion (0.6% of GDP), Rs 925 billion (-0.7 pp). At the same time, the fiscal deficit widens from Rs 6,501 billion (5.0% of GDP) to Rs 7,517 billion (5.8% of GDP), reflecting rising fiscal stress.

Keywords: oil price shock Pakistan; fiscal deficit Pakistan; primary surplus Pakistan; inflation oil prices; petroleum levy Pakistan; IMF fiscal program; external sector vulnerability; energy crisis Pakistan; macroeconomic stability Pakistan; fiscal risk analysis (search for similar items in EconPapers)
Pages: 8 pages
Date: 2026
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