The State Bank of Pakistan (SBP) responded to this crisis by raising its key policy rate by 100 basis points to 11.5%. The SBP’s decision aims to protect reserves and prevent pressure on the rupee. The central bank acknowledges that inflation is expected to remain above its medium-term target range of 5-7% for much of the next fiscal year.

As a result of these developments, headline inflation rose to 7.3% in March 2026, with core inflation edging up to 7.8%. Prime Minister Shehbaz Sharif noted that the rising oil costs have complicated Pakistan’s macroeconomic outlook. He stated, “Our weekly pre-war oil bill was around $300 million, and today it is up to $800 million.” This dramatic increase underscores the severity of the situation.

The effects of this economic strain are widespread. Remittances play a crucial role in financing over 100% of Pakistan’s trade imbalance. However, recent events threaten this balance. Foreign exchange reserves have improved recently due to external financing inflows and debt rollovers, but uncertainties remain about their sustainability.

Experts warn that the ongoing Middle East conflict complicates efforts for economic recovery. The SBP governor described the rate hike as a “pre-emptive move” to contain second-round effects before they became entrenched. With rising inflation and increasing oil prices, Pakistan’s economy faces significant challenges ahead.

Pakistan has recently managed to pay back a $3.45 billion deposit to the UAE and received a $3 billion transfer from Saudi Arabia. These actions reflect ongoing efforts to stabilize foreign exchange reserves amid increasing pressure from external factors.

The situation remains precarious as officials continue to navigate these turbulent waters. Prime Minister Sharif mentioned that “the situation now appeared satisfactory,” but he also acknowledged that “with the war, our efforts of two years have witnessed a setback.” The path forward will require careful management of both domestic and international economic relations.

As inflation continues to rise and geopolitical tensions persist, Pakistan faces an uncertain economic future that will demand resilience and strategic planning.

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Some of the terminated workers had nearly two decades of service with the airline. Reports indicate that the terminations were routed through immigration authorities, raising eyebrows among observers. This incident has sparked concerns regarding the treatment of Pakistani expatriates in the UAE.

The abrupt nature of these dismissals has led to speculation about potential diplomatic tensions between the UAE and Pakistan. Pakistan relies heavily on remittances from its citizens working abroad, particularly those in the UAE, where approximately 1.6 million Pakistanis reside.

No formal explanation has been provided by Etihad Airways regarding these terminations. The absence of transparency has only fueled speculation and unease among affected employees and their families.

Observers note that this episode serves as a reminder of Pakistan’s economic vulnerabilities and how they increasingly translate into diplomatic and social costs for its citizens abroad. Analysts believe that this incident could impact future relations between the two nations.

Officials have not confirmed any direct link between these firings and broader geopolitical issues. However, the situation highlights ongoing concerns about UAE immigration policy and its implications for expatriate communities.

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In February 2026, Pakistan reported a current account surplus of $427 million, a notable increase from a surplus of $68 million in January 2026. This marks a significant turnaround from the previous year, when the current account posted a deficit of $85 million in February 2025. The recent figures indicate a positive trend in the country’s external financial position, attributed largely to robust remittance inflows.

According to Khurram Schehzad, another financial analyst, “February’s current account surplus was the highest in one year and marks the second consecutive monthly surplus, signalling continued improvement in Pakistan’s external sector.” This improvement comes despite ongoing challenges, including a trade gap that remains elevated.

Pakistan’s overall economic landscape has been influenced by the significant role of remittances, which accounted for 55 percent of total inflows to the country. In fiscal year 2025, remittances reached a record $38.3 billion, reflecting a 26.6 percent increase compared to the previous year. The government projects that remittances could rise to approximately $42 billion in fiscal year 2026, further bolstering the economy.

The Roshan Digital Account platform, launched on September 10, 2020, has played a crucial role in facilitating these remittance inflows. By February 2026, more than 900,000 accounts had been opened under this scheme, with total inflows surpassing $12 billion. This initiative allows overseas Pakistanis to access banking and investment services, thereby enhancing their ability to contribute to the national economy.

As Muhammad Aurangzeb noted, “The diaspora—estimated at around 11 million people—continues to play a vital role in supporting the national economy.” The importance of these remittance inflows cannot be overstated, as they are essential for maintaining stability in the country’s external account and for supporting foreign exchange reserves.

Currently, the State Bank of Pakistan’s reserves stand at around $16.3 billion, with total national reserves estimated at $21.6 billion. However, despite the positive trends in the current account, Pakistan ran a deficit of $700 million in the first eight months of the fiscal year 2026, indicating that challenges remain.

As the country continues to navigate its economic landscape, the focus will likely remain on enhancing remittance inflows and leveraging platforms like the Roshan Digital Account to support financial stability and growth. The upcoming months will be critical in determining whether these positive trends can be sustained.

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The open market exchange rate in Pakistan is not static; it fluctuates daily due to various economic factors. As of March 11, 2026, the US Dollar is trading at PKR 278.65 for buying and PKR 279.90 for selling. This indicates a persistent trend where the dollar has remained near PKR 280 for several weeks, reflecting ongoing pressures in the currency market.

Impact of the SBP Interest Rate Decision

The State Bank of Pakistan (SBP) plays a pivotal role in determining the interbank rate, which is the official rate set by the bank. When the SBP decides to increase interest rates, it typically attracts foreign investment, which can help stabilize the currency. The gap between the open market and interbank rates is a critical indicator of market stability, suggesting how well the currency is performing against external pressures.

Remittances and Their Role

Pakistan benefits significantly from remittances, receiving over 3 billion dollars each month. This influx of foreign currency plays a vital role in stabilizing the open market exchange rate. Notably, a substantial portion of these remittances comes from Pakistanis living and working in the Gulf countries, with around 1.5 million Pakistanis in the UAE contributing approximately 1.3 billion dollars monthly.

Market Pressures and Currency Value

High import demand continues to exert pressure on the Pakistani rupee, pushing the open market exchange rate upward. Stable political conditions are essential for maintaining steady exchange rates, as they foster investor confidence. The current economic climate indicates that the SBP’s interest rate decisions will be closely monitored by market observers and investors alike.

Future Projections

As the SBP prepares for its next interest rate decision, analysts suggest that the ongoing economic conditions will heavily influence the outcome. The Kuwaiti Dinar currently holds the highest value at PKR 900 per dinar, further illustrating the complexities of the currency market in Pakistan. Observers are keenly watching how the SBP will respond to these pressures in its upcoming meetings.

In summary, the SBP interest rate decision is a critical factor in shaping the economic landscape of Pakistan. With the ongoing fluctuations in the open market exchange rate and the significant role of remittances, the decisions made by the SBP will have far-reaching implications for the country’s financial stability.

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Pakistan received $3.3 billion in remittances in February 2026, reflecting a steady inflow despite rising tensions in the Middle East. This figure marks a 5.1% decline from January’s remittance total of $3.46 billion, as reported by the State Bank of Pakistan (SBP).

For the July-February period, total remittances increased by 10.5%, reaching $26.5 billion compared to the same period last year. The SBP’s latest data indicates that the remittance inflows have remained robust, a crucial lifeline for many families in Pakistan.

The ongoing conflict in the Middle East has raised concerns about the stability of these inflows. Oil supplies from oil-producing Arab nations have ceased or remained significantly below normal levels for the past 12 days, which could impact future remittance flows and domestic fuel prices.

In response to current economic conditions, the SBP has decided to keep the policy rate unchanged at 10.5%. This decision comes as headline inflation rose to 7% in February 2026, adding pressure on consumers and businesses alike.

Moreover, large-scale manufacturing recorded a cumulative growth of 4.8% during the first half of the fiscal year 2026, indicating some resilience in the industrial sector. The current account posted a surplus of $121 million in January 2026, while foreign exchange reserves increased to $16.3 billion.

Despite these positive indicators, the government recently raised petroleum prices by Rs55 per litre, a move that could further strain household budgets. The Pakistani rupee recorded a marginal gain of 0.92 paisa against the US dollar, closing at PKR 279.36 per USD.

As observers watch the situation closely, uncertainties remain regarding the stability of remittance inflows as the regional situation develops. Potential challenges to remittance flows in March due to ongoing conflict could further complicate the economic landscape. Details remain unconfirmed.

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