Page 58 - CMA Journal (Mar-Apr 2026)

Exchange Rate and External Account Implications 2) Gharo-Keti Bandar Corridor: Developing the Gharo-
Keti Bandar corridor through utility-scale solar, wind
Pressures arising from rising petrol import costs and power and hydropower would lower the import bill, reduce
sector strain quickly translated into exchange rate weakness.
current account vulnerability and hedge the economy
The rupee had pre-con ict stabilized at PKR 280 per US
against future oil price volatility. The government
dollar, supported by monetary tightening and IMF
should provide greater incentives through accelerated
disbursements (Mettis Global, 2026). However, the already
depreciation allowances and investment tax credits.
deteriorating current account, which had recorded a USD
1.17 billion de cit in the rst half of FY26, further worsened 3) Reforming the Petrol Pricing Architecture: Mechanisms
the situation (SBP, 2026). SBP intervention suppressed to cushion the domestic pass-through of international
volatility, but underlying depreciation pressures continued price volatility should be considered, possibly through
to build. Fitch Ratings estimated a gradual depreciation to capitalizing a price stabilization fund during high-oil price
PKR 295 by the end of the scal year (Pakbanker, 2025) and periods, without compromising cost-recovery pricing
the energy shock signi cantly increased the probability of
strategies.
greater adjustment. IMF projections predict a depreciation
of the rupee of over 12 percent by June 2026 (Lokmat Times, 4) Improving Remittance Formalization and Geographic
2026). SBP research determined that the REER declines Diversi cation: As remittances proved resilient, with
signi cantly in response to rising global oil prices and does March 2026 in ows reaching USD 3.83 billion (Dawn, 2026),
not fully recover even when prices normalize (SBP, 2024). the concentration of 54 percent from GCC countries poses
correlated risks given Middle East instability. Policy
Reversal of Disin ationary Gains
initiatives focused on formalization of remittance channels
The immediate effect has been the reversal of the and diversi cation of labour export destinations should be
disin ationary gains achieved. After the highest CPI in ation prioritized.
of 38 percent in May 2023, Pakistan brought in ation down
5) Enhancing Domestic Debt Capital Markets: Developing
to 2.4 percent by January 2025 and 5.8 percent by January
deeper, more liquid domestic debt markets would reduce
2026 (Dawn, 2026; Pasha, 2026). The moment the Strait of
dependence on external commercial borrowing and
Hormuz was closed, this trend saw a sudden reversal:
expensive Eurobond issuances, providing stable, non-
February 2026 in ation soared to 7.0 percent, and the rate
in ationary government nancing that would reduce
further increased to 7.3 percent year-on-year in March (PBS,
2026). Under a sustained severe oil price shock, PIDE scenario exposure to exchange rate risk.
analysis projects headline in ation would rise again to 15-17
6) Enhancing Monetary-Fiscal Coordination: The SBP
percent (Qadir, 2026). This disproportionately impacts lower-
should remain vigilant on in ation expectations and
income households, which spend approximately 42 percent
scal policy must complement monetary prudence by
and 7 percent of their income on food and energy
rationalizing expenditures and providing targeted
respectively (Household Integrated Economic Survey, 2024).
social protection, especially through the Benazir
From a monetary policy perspective, the resurgence of
Income Support Programme.
in ation limits the SBP's ability to promote growth through
rate reductions.
Conclusion
CMA Professionals and Policymaker Strategies
The 2026 US-Iran military crisis and the accompanying
The 2026 crisis vividly reminds us how vulnerable Pakistan is disruption of the Strait of Hormuz have exposed deep-
to energy supply disruptions due to geopolitical reasons. In rooted structural weaknesses in Pakistan's energy-
the case of the CMA community, there are a number of dependent economic structure. The shock spread rapidly
strategic imperatives: through the petrol pricing mechanism, transmitting
immediate cost-push pressures to the transport, agriculture
1) Enterprise Energy Risk Management: There is a need
and industrial sectors, while the power sector circular debt
to institutionalize effective enterprise-wide ERM
models with the explicit inclusion of geopolitical mechanism increased scal vulnerabilities. Despite
scenario analysis and energy price stress testing. This Pakistan's successful diplomatic mediation of the April 2026
includes the systematic use of forward contracts, cease re, which prevented disastrous tail-risk scenarios, the
currency options and natural hedging mechanisms to fundamental structural exposure remains unchanged.
reduce exchange rate and commodity price exposure.

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