Business Recorder Editorials 2nd September 2026

A tightrope for Islamabad

EDITORIAL: Pakistan’s calibrated response to Washington’s latest campaign of economic pressure against Iran is understandable. But given the country’s geographic, economic and diplomatic realities, Islamabad cannot afford to treat the threat of secondary sanctions as a matter for watchful waiting. It needs to prepare for the fallout while continuing to press for an end to the conflict that has created this predicament in the first place.

The US has announced what has been termed “Operation Economic D-Day”, warning that countries and entities maintaining commercial ties with Iran could face severe secondary sanctions and exclusion from the American financial system.

The measures reportedly extend across shipping, aviation, technology, gold and digital assets, with Washington seeking to cut off Iran’s remaining sources of revenue.

Pakistan’s Foreign Office has, for now, adopted a cautious position, stating that Islamabad will conduct trade with Iran in accordance with international law and its bilateral agreements, while hoping that economic issues will ultimately from part of a broader settlement between Washington and Tehran. This is a sensible formulation, reflecting the need to balance two important bilateral relationships.

While the US remains Pakistan’s largest export market and a major economic, diplomatic and geopolitical partner, Iran is its immediate neighbour, making workable, cordial relations with Tehran vital for both economic and regional reasons.

Crucially, Pakistan’s economic relationship with Iran is larger than what official trade figures suggest. While formal exports to Iran remain negligible, unofficial bilateral trade is estimated at around USD800 million annually, much of it conducted through informal channels and barter arrangements.

Rice and mango exports alone demonstrate the importance of the border economy. Around 1,209 trucks carrying rice crossed the Gabd Border Crossing Point during June and July, while approximately 1,121 trucks carrying mangoes travelled through Taftan. This trade already faces serious risks, with security along the Quetta-Taftan route remaining particularly precarious.

New US sanctions could add another layer of uncertainty, potentially disrupting traders and exporters who depend on border markets and complicating trade through the Iran corridor.

As reported in this paper, the absence of a concrete contingency plan at the commerce ministry is particularly concerning. Islamabad cannot afford to wait for the sanctions to take effect before deciding how to protect legitimate Pakistani commerce.

The ministry should urgently map the sectors, traders, border crossings and supply chains most exposed to the new measures and develop practical alternatives for exporters and businesses. This is especially important because Pakistan and Iran have only recently agreed on measures to facilitate formal trade.

At the Pak-Iran Joint Trade Committee meeting earlier this month, the two sides agreed to improve customs operations, expand border-crossing capacity, facilitate TIR and E-TIR arrangements, and strengthen railway and air-cargo connectivity. These efforts should not be allowed to become collateral damage of an ever-escalating confrontation between Washington and Tehran.

At the same time, the foreign ministry must use Pakistan’s relationship with Washington more proactively. Islamabad should seek clarity on exemptions and carve-outs for essential humanitarian and legitimate commercial trade, and make the case that indiscriminate secondary sanctions would impose disproportionate costs on the Iranian people.

There is, however, a larger point. Pakistan’s interests do not lie in choosing between Washington and Tehran. They lie in maintaining constructive relations with both. That requires careful diplomacy and economic preparedness.

The ideal outcome remains for the US and Iran to recognise the costs of prolonging a needless war and return to negotiations. Pakistan, alongside other regional countries, must continue using its diplomatic space to encourage that outcome. Until then, Islamabad must prepare for the consequences of a conflict it had little to do with but cannot afford to ignore.

Optimistic outlook

EDITORIAL: The August Economic Update and Outlook uploaded by the Finance Division on the last day of the month began on extremely optimistic note: “Pakistan entered fiscal year 2027 on a stronger macro-economic footing, supported by strengthened fiscal buffers, enhanced economic stability and improving growth prospects arising from sustained stabilisation efforts.”

Pakistan’s economy has achieved stabilization indicated by the following data. First, current account balance improved from negative 529 million dollars in July 2025 to negative 328 million dollars in July 2026 – an improvement that is on the back of a rise in workers’ remittances that rose from 3.2 billion dollars in July 2025 to 3.6 billion dollars in July 2026 (with total remittances for last fiscal year 2025-26 rising to 41.6 billion dollars) and not on the back of an improving trade balance as exports rose from 3.2 billion dollars in July 2025 to 3.6 billion dollars in July 2026 (the cost of exports to the Gulf countries has risen as cargo is being air lifted rather than shipped), while imports rose from 5.43 billion dollars to 6.15 billion dollars in the same period.

The Minister for Energy Sardar Awais Ahmed Khan Leghari clarified that due to the Middle East turmoil the cost of a single LNG cargo has risen from 30 to 35 million dollars to 75 million dollars, which no doubt accounts for the recent rise in the import bill; however, the government must also be concerned if the rise in the trade deficit is due to the government easing import restrictions (imposed administratively) to jump-start growth as many exporters use raw material or semi-finished products as inputs.

And, secondly, the foreign exchange reserves rose to a healthy 17.1 billion dollars in July 2026 against 14.3 billion dollars in July last year.

Arif Habib Limited, a financial tracking agency, maintains that these reserves provide 2.55 to 2.75 months of import cover though the minimum requirement, as per international lending agencies, including International Monetary Fund, is three months of imports. It is also relevant to note that over 10 billion dollars of these reserves are annual rollovers by China and Saudi Arabia subject to approval by the Fund of the next tranche subsequent to approval of a quarterly staff level agreement.

The Update, however, took account of the ongoing Middle East conflict while projecting inflation to remain at 10 to 11 percent, “as recent price pressures and movements in international commodity and energy prices pass through to the domestic economy.” This estimate is higher than the 9.1 percent in July 2026 as per Pakistan Bureau of Statistics (PBS) data, a decline from June’s 11.1 percent, but when compared with the same period last year the impact of the Middle East crisis on domestic prices is clearly evident: July 2025 the consumer price index was a low of 4.06 percent while in July 2026 the rate had more than doubled to 9.20 percent and the Wholesale Price Index jumped from negative 0.49 percent July last year to 9.43 percent in July this year – indicating the much higher costs to the productive sectors.

The Update notes that credit to the private sector plummeted from negative 232.1 million rupees during July–August last year to negative 393.4 million rupees in the same period this year.

While the large-scale manufacturing (LSM) sector showed optimistic growth of 4.98 percent last year, this drop raises serious questions—questions that one hopes will be answered once the PBS uploads its LSM data for the current year.

There is no doubt that the Federal Board of Revenue (FBR) collections rose by 8.4 percent in July 2026 against July 2025; however, structural reforms remain pending defined as increasing reliance on the ability to pay principle rather than on ease of collections, given the continuing reliance on indirect taxes whose incidence on the poor is greater than on the rich, which accounts for 42.2 percent poverty levels in the country.

And finally, foreign direct investment, the stated source of spearheading growth in the economy by the Ministry of Finance, continues to be elusive and the Update notes that it declined from 223.5 million dollars in July 2025 to 178.6 million dollars in July 2026.

While stabilization – a critical objective that Pakistani administrations have struggled with since 2019 – has been achieved but much more needs to be done and there is a growing perception amongst independent economists that following the IMF prescriptions may not be the best way forward.

Instead, in-house holistic reforms are required, ranging from slashing the annual budgeted rise in current expenditure, desisting from reliance on borrowing domestically and from external sources to bring the deficit to sustainable levels, and if the private sector is to jump-start the economy then to divert private sector savings (in national savings centres) to large scale manufacturing sector – measures that no doubt would be supported by lending agencies.