The Middle East crisis is threatening Pakistan’s tentative recovery from the brink with the help of the International Monetary Fund (IMF), as soaring energy prices and the lack of regular LNG supply from Qatar dragged growth in gross domestic product (GDP) well below analyst estimates.
Pakistan’s economy grew by 2.0% in the quarter ended June, which is the fourth quarter of its fiscal year 2026, official data by the Pakistan Bureau of Statistics showed on Monday.
The GDP growth was more than twice as slow in April to June compared to the 4.42% growth in January-March, and below the 3.5% growth expected in a Bloomberg survey of economists.
For the full FY 2026 ended June, Pakistan now expects its GDP growth rate at 3.65%, slightly lower than 3.70% estimated previously, the statistics office said.
While the economy fared well in FY 2026, with only the fourth quarter seriously affected by the high energy costs, the slowdown in the April-June quarter showed that the energy crisis is hitting industry and blowing up Pakistan’s budget framework as costs to procure gas and fuels are spiraling higher with each week of disrupted traffic at the Strait of Hormuz. Industry alone contracted by 4.7% in the fourth quarter of FY 2026, while agriculture and services grew by more than 3.5%.
In the near term, Pakistan faces challenging winter months with potential natural gas shortages as the Qatari and UAE LNG flows from the Strait of Hormuz remain severely disrupted, the head of the Pakistani state-owned LNG importer said last week.
Last year, Pakistan sourced 99% of its LNG imports from Qatar, under term contracts. This year, the South Asian country had to turn to expensive spot purchases, which have pushed its power generation costs higher and could raise the import bill to over $1 billion to secure LNG for the coming months.
By Charles Kennedy for Oilprice.com
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