Islamabad risks losing International Monetary Fund support over Taliban

The military escalation between Pakistan and Afghanistan comes as the International Monetary Fund is considering the third review of its aid programme to Islamabad. The closure of border crossings, rising inflation and the energy crisis exacerbated by the war in the Middle East risk undermining an already fragile economic recovery.

Islamabad (AsiaNews) – The armed conflict between Pakistan and Afghanistan risks blocking International Monetary Fund aid to Islamabad. Inspectors from the credit institution are in the country for the third review of the economic recovery programme, which could unlock new funding and boost investor confidence.

However, the military escalation along the Afghan border, which in recent days has caused dozens of deaths and hundreds of thousands of displaced persons, now risks compromising the entire process.

After years of tension, Islamabad has struck the political and military structures of the Taliban regime in Afghanistan, accused of harbouring and supporting terrorist groups that attack Pakistan.

In recent months, the Pakistani economy had shown signs of improvement: inflation was slowing and investor confidence, after difficult years, seemed to be on the verge of gradually returning.

However, the clashes have already had concrete effects. The main border crossings have been closed for months, disrupting important trade routes and causing the prices of many goods to rise.

Bilateral trade between the two South Asian countries amounted to approximately .7 billion in 2024, accounting for about 2% of Pakistani exports, but the actual volume of trade is likely much higher due to a vast network of informal trade.

With these trade channels now blocked, inflation has also begun to rise again. In February, Islamabad recorded an annual rate of 7%, up from 5.8% in the previous month.

The economic crisis was then exacerbated by the war launched by Israel and the United States against Iran. The closure of the Strait of Hormuz is putting pressure on the energy supply of many Asian countries.

In the case of Pakistan, about 80% of the crude oil it imports passes through the strait. In addition to increased transport and insurance costs for oil tankers, the country risks finding itself short of fuel.

For this reason, Oil Minister Ali Pervaiz Malik has asked Saudi Arabia (with which Pakistan has signed a mutual defence pact) to consider an alternative route through the port of Yanbu on the Red Sea.

In the meantime, the government has already begun to introduce extraordinary measures to reduce fuel consumption, including, for example, the introduction of remote working and distance learning to limit travel.

A prolonged energy crisis risks rapidly increasing inflation, according to experts. The industrial sector could be among the hardest hit: a reduction in liquefied natural gas supplies risks causing power blackouts and putting the textile industry, one of the main drivers of Pakistani exports, in difficulty. Several shipments for international clothing retailers are stuck in ports of departure in South Asia.

The situation is also worrying Islamabad's international partners. For China and Saudi Arabia, the completion of the programme with the Monetary Fund is essential to ensure the country's financial stability.

For Beijing, the stakes are particularly high. The China-Pakistan Economic Corridor (CPEC), a billion infrastructure network built as part of the Belt and Road Initiative, crosses Balochistan, one of Pakistan's most unstable regions, which borders Iran and is most exposed to the risks of military escalation, given that armed separatist groups are already operating there.