IMF Forecasts 1.3% Economic Contraction Across Middle East, North Africa and Pakistan in 2026

The International Monetary Fund (IMF) has forecast a 1.3% contraction in the combined economies of the Middle East, North Africa and Pakistan in 2026, warning that the war involving the United States, Israel and Iran has disrupted energy production, shipping, tourism and international trade.

The regional economic outlook, released in Dubai on October 22, also projects a sharp recovery in 2027, when the combined region is expected to record 6.6% growth. However, the IMF cautions that the recovery depends on the conflict easing and trade gradually returning to normal.

The 1.3% contraction is a regional forecast, not a prediction that Pakistan’s economy alone will shrink by 1.3%. Pakistan’s individual economic outlook is assessed separately.

Why the IMF Has Revised the Regional Outlook

The conflict has created an economic shock across countries with different levels of exposure to energy production, shipping routes and international trade.

Oil-exporting economies directly affected by production and shipping disruptions have faced greater pressure. Oil-importing countries have shown comparatively more resilience, although they remain vulnerable to higher fuel costs and weaker external demand.

The IMF said regional output could recover in 2027 under its baseline scenario, but economic activity would generally remain below the levels projected before the war.

Key IMF projections

These figures refer to the economic groupings specified in the IMF’s regional outlook. They should not be interpreted as individual forecasts for Pakistan or any other single country.

Energy Disruptions Pose a Major Economic Risk

Energy markets are one of the most important channels through which the conflict could affect economic activity.

Disruptions to oil and gas production can reduce supplies and push international prices higher. Risks to shipping routes can also increase freight costs, insurance premiums and delivery times.

For businesses, these pressures may raise the cost of manufacturing, transportation and imported materials. Higher operating costs can discourage investment and weaken demand, slowing economic activity.

The impact is not limited to countries directly involved in the conflict. Economies that rely on imported fuel can also experience pressure on inflation, public finances and external balances.

What the IMF Forecast Means for Pakistan

Pakistan’s exposure to international energy prices makes the regional outlook particularly relevant. Higher oil and gas prices can increase the cost of imports and put pressure on the country’s foreign-exchange requirements.

Several risks deserve attention.

1. Higher import expenditure

If energy prices remain elevated, Pakistan may need to spend more on imported fuel. This could place additional pressure on the current account unless offset by stronger export earnings, remittances or lower imports elsewhere.

2. Inflationary pressure

Higher fuel prices can feed into transportation, electricity generation and business costs. The extent to which these increases reach consumers depends on domestic pricing decisions, subsidies and the duration of the international price shock.

3. Pressure on businesses

Manufacturers, transport operators and other energy-intensive businesses may face higher operating costs. Some companies could reduce investment or pass additional expenses on to consumers.

4. Challenges for economic stability

A prolonged external shock could complicate efforts to maintain price stability, fiscal discipline and adequate foreign-exchange reserves.

These are potential transmission channels, not confirmation that every outcome will occur. The actual impact will depend on global prices, the duration of disruptions and Pakistan’s policy response.

Regional Contraction Does Not Mean Pakistan’s GDP Will Fall by 1.3%

The distinction between regional and national forecasts is important.

The IMF’s 1.3% figure covers the combined Middle East, North Africa and Pakistan region. The overall result reflects very different economic conditions among its constituent countries.

Pakistan’s own GDP forecast is published separately and uses country-specific assumptions and fiscal-year measures. The IMF’s October 2026 outlook has projected Pakistan’s growth at around 3.5% for fiscal year 2026–27.

That projection does not eliminate the risks associated with the war. Instead, it illustrates why readers should distinguish between a regional forecast and a country-specific estimate.

Why Oil Importers Have Shown More Resilience

According to the IMF, oil-importing economies have benefited from factors including remittances, tourism flows, domestic demand, favourable financial conditions and policy responses aimed at cushioning consumers from higher commodity prices.

These factors can help absorb some of the initial shock, but they cannot fully eliminate the effects of prolonged disruption.

Countries that depend heavily on imported energy may still face higher production costs, pressure on household purchasing power and weaker trade balances.

For Pakistan, developments in international oil markets, the cost of shipping and the performance of exports and remittances will remain important indicators.

IMF Expects Recovery in 2027, but Uncertainty Remains

The IMF’s baseline scenario assumes that the conflict will ease in early 2027 and that trade will gradually normalise during the year.

Under those conditions, regional economic output is expected to rebound strongly. However, the institution warned that further disruption to energy production or trade routes could push energy prices higher and weaken the recovery.

Tighter global financial conditions are another risk. Higher interest rates or a reassessment of expected productivity gains from artificial intelligence could affect financial markets, borrowing costs and investment.

The projected 6.6% regional growth in 2027 should therefore be treated as a conditional forecast rather than a guaranteed outcome.

What Policymakers Need to Monitor

The IMF has called on policymakers to prioritise price stability, preserve fiscal sustainability, maintain central bank independence and implement structural reforms to improve productivity and employment.

For Pakistan, the following indicators will be particularly important:

• International oil and gas prices.
• Shipping conditions and the reliability of energy supplies.
• Monthly import payments and current-account developments.
• Inflation and domestic fuel-price adjustments.
• Foreign-exchange reserves, exports and remittances.
• Revisions to Pakistan-specific IMF growth forecasts.

Monitoring these indicators can help establish whether the external shock is easing or creating additional pressure on the economy.

Conclusion

The IMF’s latest assessment highlights the economic consequences of prolonged regional conflict. Disruptions to energy production, shipping, tourism and trade are expected to push the combined Middle East, North Africa and Pakistan region into contraction in 2026.

Pakistan faces risks from higher energy costs and external financing pressures, but the regional contraction figure should not be confused with a forecast for Pakistan’s individual GDP.

The expected recovery in 2027 depends on the conflict easing and trade normalising. Until those conditions become clearer, the regional and national economic outlooks remain exposed to significant uncertainty.

Editorial note: The regional contraction and recovery figures are from the IMF outlook reported by Reuters and published by Dawn on October 22, 2026. Pakistan-specific growth projections should be checked against the IMF’s country reports and latest economic outlook.