Pakistan, Bangladesh, Sri Lanka face fresh oil shock with stronger buffers

August 17, 2026 (MLN): Pakistan, Bangladesh and Sri Lanka face renewed pressure from elevated global oil prices tied to the Middle East conflict, though all three economies now carry stronger buffers than during the 2022 energy shock, when a Sri Lankan sovereign default coincided with devastating floods in Pakistan, according to a Moody's assessment.

Brent crude is expected to hover mostly in a $90-$110 per barrel band for the remainder of 2026, with a geopolitical risk premium likely to keep prices volatile and occasionally push them beyond that range.

Import-reliant economies across the region have seen consumer prices climb as a result, though the pass-through to inflation has been considerably softer than in 2022.

Tariff adjustments tied to cost recovery under IMF-backed programs, energy pricing overhauls, and looser currency management have collectively cushioned the impact this time.

Exchange rates across the three countries have stayed comparatively stable through the latest oil price run-up, diverging sharply from 2022, when currencies weakened sharply in a short span.

Movement toward market-determined exchange rate systems under IMF arrangements has curbed the odds of a disorderly depreciation, even as energy import bills continue to weigh on external accounts.

Reserve positions in Pakistan and Bangladesh have stayed largely intact since the conflict escalated, while Sri Lanka's reserves have thinned, pressured further by a slowdown in tourism receipts layered on top of costlier energy imports.

Buffers remain thin across all three economies in absolute terms, but represent an improvement over 2022, when rapid reserve drawdowns were used to prop up currencies.

Worker remittances, close to half of which originate in Gulf and wider Middle Eastern labor markets for each of the three countries, have continued flowing steadily despite the conflict, functioning as a dependable foreign currency source.

A shift toward market-based currency regimes has also encouraged remittance flows to move back through formal banking channels, reversing a 2022-era trend where currency devaluations pushed transfers toward informal routes.

Growth projections for all three economies have been trimmed to reflect the fallout from the conflict. The downward revisions for Pakistan and Sri Lanka are milder than the cuts made in 2022, pointing to a stronger built-in capacity to withstand external shocks.

Pakistan's outlook was revised down by 0.2 percentage points for FY26 and 1.0 percentage point for FY27 far less severe than the 4.0 percentage point cut recorded in FY23 during the earlier shock. 

Overall, while Pakistan and its regional peers remain structurally exposed to swings in global oil prices given their reliance on energy imports, tighter fiscal management, IMF-linked reforms, and more flexible currency regimes have left the region better positioned to absorb the current shock than it was during the 2022 crisis.

Copyright Mettis Link News