Pakistan reserves could fall to $1.6B

Pakistan’s foreign-exchange story is back in the danger zone. Not because the country suddenly ran out of dollars this week, but because a new oil-shock scenario shows how quickly the buffer could disappear if the Middle East war keeps energy expensive. That is the real news here — Pakistan had clawed its way into a more stable IMF-backed recovery, and now the same old external weakness is threatening to reopen. The warning is blunt: reserves that were meant to rebuild could instead be ground down to near-crisis levels again. (scmp.com) ### What exactly is being warned? Oxford Economics says Pakistan’s reserves could fall to $6.8 billion by the end of 2026 and then to about $1.6 billion by fiscal 2028 under its updated commodity-price baseline. That is not a forecast of immediate collapse tomorrow. It is a stress path built on expe(scmp.com)wn domestic policy accident to get into trouble; a bad external shock can do plenty on its own. (scmp.com) ### Why does oil matter so much? Pakistan imports a huge share of its energy, so higher oil and gas prices hit the country’s external account fast. More dollars leave to pay for fuel. Inflation rises at home. Growth gets squeezed. And the government ends up choosing between paying more for energy, c(scmp.com) cushions or more domestic energy supply. (scmp.com) ### Why is the Strait of Hormuz in this story? Because it is the chokepoint that turned a regional war into a balance-of-payments problem. Disruption there has pushed up energy prices and rattled flows of crude, LNG, and refined products. In Oxford Economics’ scenario, oil averages $113 a barrel in (scmp.com)re the conflict. For a fuel importer, that kind of move is not background noise. It is the whole plot. (scmp.com) ### But weren’t reserves improving? Yes — and that is what makes this warning sting. Pakistan’s reserves had recovered meaningfully over the past year as IMF support, official inflows, and remittances helped stabilize the economy. The Asian Development Bank said reserves reached $14.5 billion at end(scmp.com)illion held by the central bank. So this is not a story about zero progress. It is a story about how fragile that progress still is. (adb.org) ### Where does the IMF fit in? Right in the middle. Pakistan’s 37-month, $7 billion IMF program was approved in September 2024, and the first review was completed on May 9, 2025, unlocking about $1 billion and bringing total disbursements to roughly $2.1 billion. The whole program is built around rebuilding reserves and stabilizing financing. (adb.org)ually shifts back onto austerity, import compression, and slower growth. (imf.org) ### Why do remittances matter too? Because Pakistan’s external position is not just about imports. It also depends heavily on money sent home by workers in Gulf economies. If the war hurts Gulf labor markets or fiscal spending there, remittances could soften just as Pakistan’s fuel bill (imf.org)beyond its baseline. (independent-pakistan.com) ### What is Pakistan doing already? Islamabad has already moved to conserve fuel and reduce demand — including shorter work patterns, remote-work measures, lower fuel allowances for government vehicles, and temporary school closures. Those steps can slow r(independent-pakistan.com)ves can also damage growth. (scmp.com) ### So what is the bottom line? Pakistan is not out of dollars today. But the latest warning shows how thin the margin still is. A country can look stabilized on paper and still be one energy shock away from another external squeeze. That is what the $1.6 billion number really means — not a prediction carved in stone, but a reminder that Pakistan’s recovery remains highly conditional on oil, remittances, and continued IMF support. (scmp.com)