Islamabad, Feb 19: Pakistan’s economic situation is likely to start unfolding negatively in 2026, as geopolitical headwinds appear to be re-emerging, according to media reports.There is visible friction in Pakistan-UAE ties, evident from the monthly rollover of UAE deposits at a higher rate of 6.5 per cent, when the government had previously been confident of a two-year rollover at half the rate.
Potential UAE investment in Fauji Foundation companies also remains in limbo, according to an article in the Karachi-based Business Recorder. There has been radio silence on any incremental economic support from China. CPEC Phase-2 is completely on the back burner.
There is little hope of renegotiating Chinese power sector debt, as the refusal by Chinese IPPs to waive late payment surcharges is delaying the settlement of the power sector circular debt stock, despite banks agreeing to lend at sub-Kibor rates, the article stated.
It also highlights growing security concerns in Balochistan have now delayed the Reko Diq financial close indefinitely, despite it being touted as a game-changer. “Most importantly, the government’s warm and cordial terms with the Trump administration is losing its charm. The US has closed a trade deal with India at tariffs better than those for Pakistan. Bangladesh has also revised its tariff arrangement with the US to achieve zero duty on textile products while importing cotton from the US. Other countries continue engaging with the US and the rest of the world, while we bask in the high of being close to Trump,” the report added.
It also observes that State Bank of Pakistan’s (SBP) foreign exchange reserves at $4.3 billion were less than the uptick in external public debt and liabilities at $7.2 billion during 2025. External debt growth, therefore, outpaced reserves building by nearly $3 billion, even as the current account deficit remained a mere $0.2 billion for the calendar year.
SBP’s purchases of $5.2 billion from the interbank market during January to October 2025 were not enough to help raise reserves net of the increase in debt and liabilities. The SBP is responsible for arranging dollars for servicing government debt (principal and mark-up).
This compels the SBP to buy virtually all surplus dollars arriving at bank treasuries, preventing banks from freely trading forex. This occurred despite commodity price tailwinds favouring the economy, as oil prices dipped by 15 per cent in 2025, the article points out.
FDI remained abysmally low, and the same fate befell other external inflows (barring debt). There have been talks of investment and debt from friendly countries for three years, yet little has materialised so far, the article added.