Economic Affairs Division flags economic risks from renewed US-Iran conflict

• NA panel seeks cheaper financing for Lyari freight corridor
• Voices concern over K-IV delays, funding shortfall

ISLAMABAD: The Economic Affairs Division (EAD) on Wednesday warned a parliamentary panel that any renewed US-Iran escalation could adversely affect Pakistan’s economy through higher energy costs, inflation, increased external financing needs and slower economic growth.

Against this backdrop, the National Assembly Standing Committee on Economic Affairs Division, led by Mirza Ikhtiar Baig, advised the government to evaluate all possible cost-effective options for the construction of the multi-billion-rupee Lyari Elevated Freight Corridor (LEFC) before entering into stringent loan conditions with the Korean Exim Bank. The committee also expressed concern over delays and cost overruns in the Karachi Greater Water Supply Project (K-IV).

The EAD team, comprising parliamentary secretary Zeb Jaffar and federal secretary Humair Karim, informed the committee that Pakistan entered 2026 with improving macroeconomic fundamentals. However, the outbreak of the Middle East conflict and the temporary closure of the Strait of Hormuz significantly disrupted global energy markets, resulting in higher oil prices, supply chain disruptions and inflationary pressures.

In its assessment, the EAD reported that following the ceasefire and the Islamabad Memorandum of Understanding, international oil prices had moderated and maritime trade largely resumed. Nevertheless, regional uncertainties persist, and any renewed escalation could adversely affect Pakistan’s economy.

The committee expressed reservations over the significant disparity in the estimated cost of the LEFC project under the proposed financing arrangement with the Korean Exim Bank compared to the estimate prepared by the National Highway Authority. It observed that the proposed financing would result in a project cost nearly twice that estimated by the NHA and emphasised the need to identify the most cost-effective financing option in the national interest.

After detailed deliberations, the committee recommended that the EAD secretary convene consultations with the NHA, the Ministry of Planning, Development and Special Initiatives, and the KPT to develop a mutually agreed and financially prudent financing model.

The committee also expressed concern over the slow progress of the K-IV project, noting that only Rs10 billion had been allocated against the project’s estimated requirement of Rs78bn. Members observed that the significant funding gap could adversely affect the timely completion of the project and delay the provision of an adequate water supply to Karachi.

The committee recommended that the Ministry of Water Resources and the project director for K-IV present a comprehensive briefing at its next meeting, covering the project’s status, financial requirements, timeline and the measures being taken to address existing constraints.

The committee was also apprised of the progress on Tranche-III of the Central Asia Regional Economic Cooperation (Carec) project and informed that the NHA had awarded the contract, with completion targeted by December 2027.

Published in Dawn, July 9th, 2026 ...