IMF flags rising inflation risks for Pakistan amid Middle East conflict

The IMF has warned that inflation in Pakistan could accelerate if conflict in the Middle East continues, and said policymakers may need to tighten monetary settings if price pressures grow. In its October 2026 regional outlook, the Fund reported annual inflation of 11.1% in Pakistan in August, driven by higher food and energy costs. It also described Pakistan’s policy rate as below its estimated neutral level.

The report said Pakistan had raised interest rates since the conflict began, making it the only flexible-exchange-rate economy in the MENAP region to do so. The IMF also cautioned that Pakistan’s external position could weaken over time as imports increase and remittances moderate, while remittance levels were broadly stable so far in 2026. Across MENAP, output is forecast to contract by 1.3% this year, with a recovery expected in 2027; a prolonged conflict could worsen inflation and economic activity.