Immediately after Iran’s recent attack on Israel, its impact on the global oil market became evident. According to the latest reports, oil prices in the global market have increased by 4%. Similarly, the price of gold has risen, and as often seen during times of war, the global prices of food are also expected to increase. Additionally, Iran has warned Israel that its next attack will be far more painful.
For the first time after the recent attack, the citizens of Gaza were seen smiling with joy. Israel, however, continues its stubbornness and defiance, opening multiple fronts. Meanwhile, the Muslim world remains a silent spectator. If a global Muslim boycott of Israeli products had been enforced since October last year, Israel might have backed down from its obstinacy, but such an effective and impactful economic boycott has not yet materialized.
In any case, alongside the rise in oil and gold prices, the possibility of increased food prices is also clear. Pakistan spends a significant amount of foreign exchange on oil and food imports, contributing to its trade deficit, which often faces severe challenges. This year, another commodity raw cotton has been added to the import list, with its imports continuously rising. These factors combined will lead to an increase in Pakistan’s import costs, further widening the trade deficit.
On one hand, Pakistan’s debt burden is increasing, making it difficult to manage debt repayments and interest costs, especially when exports are low, imports are high, and the trade deficit is growing. With nine months left in the fiscal year, the government needs to closely monitor imports, considering the rising oil prices and other concerns due to the Middle East conflict. Although no purchases have been made yet at the increased oil prices, last month’s trade deficit still grew by 20%.
If this trend continues, Pakistan’s financial situation will become even more complex, as further tensions in the Middle East will have negative impacts on the global economy, likely leading to a recession. When examining Pakistan’s exports, the situation is not very encouraging. In September 2024, export earnings were $2.805 billion, compared to $2.762 billion in August 2024 only a 1.56% increase. As mentioned earlier, the trade deficit is widening, and in the event of any negative developments in the global economy, it’s hard to predict how Pakistan’s exports will fare. However, import costs are likely to rise, contributing to the monthly increase in the trade deficit, which will negatively impact the country’s financial health.
Looking at the country’s current business climate, traders report widespread sluggishness. Despite government assurances that many economic indicators are showing positive trends, for now, the dollar rate is being controlled, and its price has not increased this is good news, as importers remain content, avoiding the risk of upsetting buyers with higher prices. However, the minimal increase in exports and the 20% monthly rise in the trade deficit could pose challenges for Pakistan’s economy in the future. Hence, comprehensive planning is essential, as Israel’s defiance and stubbornness could lead to unforeseen developments. The first and most severe negative impact of this situation will be on global commodities, food, oil markets, and cotton prices, which could place financial pressure on Pakistan as well. In such circumstances, the positive effects of borrowing from the IMF may be limited.