Pakistan’s economic growth trajectory is set to weaken over the current and next fiscal years following a sharp reduction in development spending and renewed external pressures from global oil volatility and supply chain disruptions linked to the Middle East conflict, officials said on Monday. Planning Minister Ahsan Iqbal said the combined impact of fiscal adjustments and external shocks would pull down economic momentum and affect the government’s 4.2 per cent growth target for the current fiscal year. He confirmed that the Public Sector Development Programme (PSDP) had been reduced by Rs173 billion, bringing total allocation down from Rs1.01 trillion to Rs837 billion, with the adjustment used to finance the Prime Minister’s Austerity Fund for fuel subsidies, particularly diesel during the harvest period.

The minister said this marks the first official acknowledgement of likely underperformance against the growth target, noting that international lenders have already projected growth in the range of 3.2 to 3.5 per cent, below government estimates. According to the planning ministry, Pakistan’s GDP growth improved to 3.8 per cent in the first half (July–December) of the fiscal year, compared with 1.9 per cent in the same period last year, before the economy was hit by what officials described as an external shock from the Middle East crisis. Iqbal warned that while the immediate impact on the current fiscal year would be partially contained due to the timing of the shock in the final quarters, the more pronounced effect would emerge in the first six months of the next fiscal year, as global supply chains typically take six to nine months to stabilise.

He said oil price volatility remained a key transmission channel for inflation and growth pressure, describing crude oil and supply chains as “oxygen” for global economies. Rising import costs, he added, were feeding into export competitiveness as well as petrochemicals and fertiliser pricing. To manage pressures, the government initially raised diesel and petrol prices by Rs55 per litre, followed by a temporary freeze supported by a Rs129 billion subsidy, funded through cuts in the development budget.

Later, amid disruptions linked to the Strait of Hormuz, fuel prices were adjusted upward by Rs137 per litre for petrol and Rs184 per litre for diesel, before the prime minister reduced diesel prices by Rs135 per litre to ease cost-push inflation and protect farmers during harvest. The minister said Pakistan also intensified diplomatic engagement, including facilitating US–Iran talks, warning that prolonged conflict would amplify global inflation and deepen risks of stagflation. He noted that the International Monetary Fund (IMF) had already revised global growth expectations down to 3.1 per cent from 3.3 per cent, while raising inflation forecasts to 4.4 per cent from 3.8 per cent.

Inflation trends in Pakistan, he said, had also accelerated, with average inflation rising to 5.7 per cent in the first nine months compared to 3.5 per cent a year earlier, while March consumer prices surged to 7.3 per cent from 0.7 per cent, driven mainly by non-food and energy components. Officials added that the National Price Monitoring Committee (NPMC) had shifted from monthly to weekly meetings to coordinate price controls with provinces and ensure adjustments in transport fares aligned with fuel price changes.