Analysts say diplomatic gains may attract investment but are unlikely to solve structural problems plaguing the economy
US Vice President JD Vance shakes hands with Pakistan’s Chief of Army Staff Field Marshal Asim Munir next to Pakistan’s Prime Minister Shehbaz Sharif as they meet for high-level talks at the Buergenstock Resort Lake Lucerne, Switzerland, June 21, 2026. PHOTO: REUTERS
Pakistan’s role in brokering a peace deal in the US-Iran war has led to widespread diplomatic recognition that could bring Islamabad some economic benefits, but analysts question whether such gains can help address fault lines in the country’s economy.
Prime Minister Shehbaz Sharif and Army Chief Field Marshal Asim Munir attended Iran-US talks in the Swiss city of Buergenstock last weekend, the culmination of Pakistan’s months-long role in one of the world’s most consequential diplomatic negotiations.
“This guy. What’s going on, man?” US Vice President JD Vance said this when he saw Munir in the resort town before giving the army chief a hug. Both sides, along with several world leaders, have thanked Islamabad for helping ease a conflict that could have disrupted the Strait of Hormuz for a long period, choked global oil supplies and crushed the world economy.
The breakthrough has raised Pakistan’s profile, and analysts say the country of 250 million people has an opportunity to convert that goodwill into some gains for an economy marked by decades of boom and bust. But they said any benefits were unlikely to address deeper structural problems, including social and economic inequality, a narrow tax base and repeated IMF bailouts.
Pakistan is targeting economic growth of 4.0% and inflation of 8.2% for the coming fiscal year, compared with an expected growth of 3.7% in fiscal 2026, which ends in June, and an average inflation of 6.7% in the July-May period of the outgoing year.
Read: Peacemaking’s financial payback
“A nation that provides stability at home and helps promote stability abroad becomes a more credible destination for investment,” said Khurram Schehzad, adviser to Pakistan’s finance minister. “A growth-oriented economic agenda, combined with a reputation as a force for peace and stability, places Pakistan in a uniquely favorable position to attract investment in its people, infrastructure, technology and future growth sectors.”
Many analysts expect some increase from the US, although there have been no signs of such crashes yet.
Alex Vatanka, senior fellow and director of the Iran program at the Middle East Institute in Washington, said one gain for Pakistan was “the enormous potential to become a more integrated part of the wider Middle East” and eventually forge broader economic partnerships in the region, which would also include defense.
Another possibility was that sanctions relief against Iran could allow “huge trade between Iran and Pakistan,” particularly through their Balochistan land border, said Miftah Ismail, a former finance minister.
Have seen this before
After the September 11, 2001 attacks and the US invasion of Afghanistan, alignment with Washington helped secure debt restructuring from more than a dozen bilateral creditors, renewed support from the IMF and other multilateral lenders, and US aid. But Pakistan failed to benefit due to structural weaknesses, analysts say.
Khurram Husain, an economic commentator and journalist, said the current situation was similar to 9/11, but with one crucial difference: That moment came at “the start of a long ruinous war in which Pakistan was supposed to play a frontline role,” while this time “Pakistan is playing the role of a peacemaker.”
This distinction means that this time Pakistan’s leverage comes from being useful to several sides simultaneously – Washington, Tehran, the Gulf states, Turkey and China.
Former finance minister Ismail said the diplomatic role had improved Pakistan’s international prestige but had no effect on the high costs, weak exports and external repayments that make the country dependent on the IMF. “Our house is in such disarray that foreigners cannot really help us unless we help ourselves,” he said. “Nothing in this war changes that, and we will be constantly dependent on the IMF.”
Read more: Is Pakistan Rising as a Middle Power?
Asim Ijaz Khawaja, a professor at Harvard University and director of the Harvard Center for International Development, said Pakistan should resist short-term economic concessions that do not increase productivity. Instead, he said Pakistan should seek academic exchanges and scholarships, preferential market access for textiles and IT services, technology transfer and green investment frameworks.
Hamish Falconer, Britain’s Middle East minister, thanked Islamabad for its peacekeeping role during a visit last week and told Reuters Britain saw “enormous opportunities to deepen trade links” with Pakistan, and that a British trade minister was expected to visit in the coming months.
Diplomats from two other Western countries have also said their governments are exploring strengthening economic ties following Islamabad’s peace efforts. They did not wish to be identified further.
‘Peace focal point’
Atif Mian, professor of economics, public policy and finance at Princeton University, said Pakistan should avoid treating diplomacy as another route to deposits, rollovers or IMF-style aid.
The real prize, he said, was a “peace hub” – 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.
Read also: Pakistan helped avert a wider conflict through mediation between the US and Iran, security sources say
Analysts said any new economic gains would not address Pakistan’s deeper constraints.
“If structural reforms are not implemented, the country is poised for implosion in the coming decades,” said Adeel Malik, associate professor of development economics at Oxford University.
“There are deep-seated grievances among the youth and the shrinking middle class against Pakistan’s ruling elite. The prevailing system has given the ruling elites a longer lifespan, but has made the country socially and economically insecure.”
