Business Recorder
By April 2026, the question is no longer over the delay in structural reforms. The more relevant point is that the political window to implement reforms in this cycle has closed. The external shock now building around the Iran war only makes that clearer. The IMF has already warned that the conflict will mean slower growth and higher inflation globally, while SBP has said the war has materially increased uncertainty around Pakistan’s macro-outlook. That is the worst possible backdrop for a government already trying to market stabilization as recovery. States do not usually choose this moment to take on protected sectors, rewrite incentive structures, or impose fresh structural pain. They usually do the opposite: defend momentum, protect optics, and postpone the hard part. The external environment is not merely volatile. It is now directly inflationary and balance-of-payments negative for an energy importer such as Pakistan. That means the shock is not just about the oil price ticker. It is arriving through three channels at once: the import bill, transport and freight costs, and second-round inflation through supply chains. The domestic pass-through has already started, and brutally so. Pakistan is entering that shock with much less room than the headline recovery narrative suggests. Since 2023, remittances have been doing the real stabilizing work.The central bank’s March statement reiterated the reserves target of $18 billion by June. Pakistan’s repayment of a $3.5 billion UAE loan package along with Euro bonds payment together amounts to more than a quarter of SBP’s June number, creating obvious pressure on reserve targets. In simple terms, the external account was already manageable rather than strong, and the war is hitting it before its claimed gains were securely banked. The bigger problem is domestic political economy. Officially, the state is now telling a recovery story. SBP also insists that economic activity continues to strengthen, citing better readings in auto sales, cement dispatches, electricity generation and POL sales, while expecting growth within the earlier projected range. The Finance Division is singing from the same sheets, highlighting stronger LSM, robust vehicle production, rising agricultural credit and higher machinery imports. That is exactly why demand compression is now politically difficult. Once a government starts presenting rising industrial activity and import-intensive investment as proof that the economy has turned the corner, it becomes far less willing to tap the brakes. But Pakistan’s growth rebounds have a familiar weakness: they leak quickly into imports. If domestic demand gains a momentum of its own while oil, freight and insurance stay elevated, the trade deficit will widen not because the economy is healthy, but because the recovery remains externally dependent. The fiscal side is not much safer. The headline numbers still show discipline: the March update reports a primary surplus of 3.2 percent of GDP in Jul-Jan FY26 and a sharply compressed overall fiscal deficit. But that does not mean the political instinct remains austere. Development expenditure is up 13.0 percent and BISP spending up 36.9 percent year on year. Then comes the fuel shock, and with it the return of relief politics. The government had already absorbed Rs 129 billion in fuel subsidy over the previous three weeks before deciding it was no longer affordable, then shifted toward targeted assistance for small farmers, motorcyclists and intercity transport. That is how slippage starts in Pakistan: not through one giant fiscal explosion, but through layered concessions justified as temporary relief. Once second-round inflation begins to spread through transport, food logistics and farm costs, the pressure for more subsidy-led cushioning will intensify. War-driven energy, freight and insurance costs are likely to push inflation up faster than previously expected. On the diplomatic side, Islamabad may understandably conclude that foreign-policy relevance improves its room for manoeuvre.In the minds of policymakers, that can easily morph into a broader assumption: if Pakistan is geopolitically useful, the IMF may show flexibility on the pace of austerity or the sequencing of conditionality. Perhaps it will, at the margin. But that should not be confused with a free macro pass. The Fund can be flexible on timing. But it cannot ignore reserve depletion, current-account deterioration, or financing gaps forever. Friendly optics in Washington do not pay for imported oil. That is why the reform window is over in practical terms. The government is now too invested in the recovery narrative to deliberately slow activity, too exposed to inflation to avoid relief politics, and too tempted to treat geopolitical relevance as economic policy space. The likely result is not immediate collapse. It is something more familiar and more Pakistani: a gradual erosion of the gains won through hard fiscal compression and relative macro restraint. Soon, the primary surplus will start looking thinner, and reserve accumulation will lose credibility. And the state, once again, confuses temporary stabilization with durable reform until the arithmetic calls its bluff.
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