Pakistan's Peace Diplomacy Wins Praise, Yet Economic Challenges Persist
For Pakistan, one key gain is the "enormous potential to become a more integrated part of the broader Middle East," and eventually, to forge more extensive economic partnerships throughout the region.
For Pakistan, one key gain is the "enormous potential to become a more integrated part of the broader Middle East," and eventually, to forge more extensive economic partnerships throughout the region.
Pakistan’s role in brokering a peace deal in the Iran conflict has earned widespread diplomatic acclaim, which could bring Islamabad certain economic benefits. However, analysts remain skeptical about whether these gains can resolve the deep-rooted fractures within its economy.
Prime Minister Shehbaz Sharif and Army Chief Field Marshal Asim Munir attended talks between Iran and the U.S. in the Swiss town of Buergenstock last weekend. This marked the culmination of months of effort by Pakistan in one of the world's most consequential diplomatic negotiations.
"This guy. What’s up, man?" U.S. Vice President JD Vance remarked upon seeing Munir in the resort town before giving the army chief a hug. Both sides, alongside numerous world leaders, have thanked Islamabad for helping to ease a conflict that could have disrupted the Strait of Hormuz for a long period, choked global oil supplies, and shattered the world economy.
This breakthrough has raised Pakistan’s global profile. Analysts note that the nation of 250 million now has an opportunity to convert this goodwill into gains for an economy long marked by cycles of boom and bust. However, they warn that these benefits are unlikely to address deeper structural issues, such as social and economic inequality, a narrow tax base, and a reliance on repeated IMF bailouts.
Pakistan is targeting an economic growth rate of 4.0 percent and inflation of 8.2 percent for the upcoming fiscal year, compared to the 3.7 percent growth projected for the 2026 fiscal year ending in June, and an average inflation rate of 6.7 percent during the July-May period of the outgoing year.
"A nation that delivers stability at home and helps advance stability abroad becomes a more credible destination for investment," said Khurram Schehzad, an adviser to Pakistan’s finance minister.
"A growth-oriented economic agenda, coupled with a reputation as a force for peace and stability, places Pakistan in a uniquely favorable position to attract investment into its people, infrastructure, technology, and future growth sectors."
Many analysts are anticipating potential financial support from the U.S., though there have been no signs of such windfalls yet.
Alex Vatanka, senior fellow and director of the Iran program at the Middle East Institute in Washington, noted that a major gain for Pakistan is the "huge potential to be a more integrated part of the broader Middle East," eventually building wider economic and defense partnerships in the region.
Another possibility, according to former finance minister Miftah Ismail, is that the easing of sanctions on Iran could facilitate "huge trade between Iran and Pakistan," particularly through their land border in Balochistan.
Seen This Before
Following the September 11, 2001 attacks and the U.S. invasion of Afghanistan, aligning with Washington helped Pakistan secure debt rescheduling from over a dozen bilateral creditors, renewed support from the IMF and other multilateral lenders, and U.S. assistance. However, analysts point out that Pakistan failed to capitalize on these opportunities due to underlying structural weaknesses.
Economic commentator and journalist Khurram Husain remarked that the current situation bears similarities to the post-9/11 era, but with a critical distinction: that moment came at "the start of a long ruinous war in which Pakistan had to play a frontline role," whereas this time, "Pakistan is playing the role of a peacemaker."
This distinction implies that Pakistan’s leverage now stems from its utility to multiple parties simultaneously: Washington, Tehran, Gulf states, Turkey, and China.
Former finance minister Ismail noted that while the diplomatic role has enhanced Pakistan’s international prestige, it has not altered the high costs, weak exports, and external debt repayments that keep the country tethered to the IMF.
"Our house is in such disorder that foreigners can’t really help us unless we help ourselves," he said. "Nothing here in this war changes that, and we will be continually dependent on the IMF."
Asim Ijaz Khawaja, a professor at Harvard University and director of the Harvard Center for International Development, argued that Pakistan should resist short-term financial concessions that do not boost productivity.
Instead, he suggested that Pakistan should pursue academic exchanges and scholarships, preferential market access for textiles and IT services, technology transfer, and green investment frameworks.
Hamish Falconer, Britain’s minister for the Middle East, thanked Islamabad for its peacekeeping role during a visit last week, telling the press that the UK sees "huge scope for deepening trade links" with Pakistan and that a British trade minister is expected to visit in the coming months.
Diplomats from two other Western countries have also indicated that their governments are exploring the strengthening of economic ties following Islamabad’s peace efforts, though they requested to remain anonymous.
‘Peace Pivot’
Atif Mian, a professor of economics, public policy, and finance at Princeton University, argued that Pakistan should avoid treating diplomacy as just another route to deposits, rollovers, or IMF-style relief.
The real prize, he said, is a "peace pivot"—both external and domestic—built on regional trade, energy links with Iran, and deeper integration with the Gulf and Turkey through exports, technology transfer, and co-dependent industries.
Analysts maintain that any new economic gains will not fix Pakistan’s deeper constraints.
"If structural reforms are not implemented, the country is poised for an implosion in coming decades," said Adeel Malik, an associate professor of development economics at Oxford University.
"There are deep-seated grievances among the young and the shrinking middle classes against Pakistan’s ruling elite. The prevailing system has given ruling elites an extended lease of life but has made the country socially and economically insecure."