Analysts say diplomatic progress could attract investment but is unlikely to solve the structural problems plaguing the economy.
U.S. Vice President JD Vance shakes hands with Pakistani Army Chief of Staff Field Marshal Asim Munir alongside Pakistani Prime Minister Shehbaz Sharif as they meet for high-level talks at the Buergenstock Resort in Lake Lucerne, Switzerland, June 21, 2026. PHOTO: REUTERS
Pakistan’s role in brokering a peace deal in the U.S.-Iran war has drawn widespread diplomatic praise that could bring Islamabad some economic benefits, but analysts question whether such progress can help address flaws in its economy.
Prime Minister Shehbaz Sharif and Army Chief Marshal Asim Munir attended talks between Iran and the United States in the Swiss town of Buergenstock last weekend, the culmination of Pakistan’s months-long role in one of the world’s most important diplomatic negotiations.
“This guy. What’s up, man?” said US Vice President JD Vance after seeing Munir at the resort before hugging the army chief. Both sides, along with several world leaders, thanked Islamabad for helping quell a conflict that could have disrupted the Strait of Hormuz for a long time, choked off global oil supplies and destroyed the global economy.
The breakthrough has raised Pakistan’s image and analysts say the country of 250 million has an opportunity to convert that goodwill into gains for an economy marked by decades of boom and bust. But they said those 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 per cent and inflation of 8.2 per cent for the next financial year, compared to projected growth of 3.7 per cent for the 2026 financial year which ends in June and average inflation of 6.7 per cent for the July-May period of the outgoing year.
Read: The economic benefits of peacemaking
“A nation that provides stability at home and helps promote stability abroad becomes a more credible destination for investments,” said Khurram Schehzad, advisor 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 in its population, infrastructure, technology and sectors of future growth.”
Many analysts expect largesse from the United States, although no signs of such windfalls have yet been seen.
Alex Vatanka, senior fellow and director of the Iran program at the Middle East Institute in Washington, said one of the gains for Pakistan was “the enormous potential to become a more integrated part of the broader Middle East” and, ultimately, to forge broader economic partnerships in the region that would also encompass defense.
Another possibility is that sanctions relief on Iran could allow “huge trade between Iran and Pakistan”, particularly across their land border in Balochistan, said Miftah Ismail, a former finance minister.
I’ve seen this before
After the September 11, 2001 attacks and the U.S. invasion of Afghanistan, alignment with Washington secured debt rescheduling from more than a dozen bilateral creditors, renewed support from the IMF and other multilateral lenders, and U.S. aid. But Pakistan has failed to take advantage of it due to structural weaknesses, analysts say.
Khurram Husain, an economic commentator and journalist, said the current situation was similar to the post-9/11 situation, but with one crucial difference: this moment came “at the start of a long, ruinous war in which Pakistan had to play a frontline role” while this time “Pakistan is playing the role of a peacemaker.”
This distinction means that Pakistan’s influence this time comes from being useful to several parties simultaneously – Washington, Tehran, the Gulf states, Turkey and China.
Former Finance Minister Ismail said the diplomatic role had boosted Pakistan’s international prestige, but it had no effect on the high costs, low exports and external repayments that keep Pakistan dependent on the IMF. “Our house is in such a mess that strangers can’t really help us unless we help ourselves,” he said. “Nothing here in this war changes that and we will continually depend on the IMF.”
Learn more: Is Pakistan becoming 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 financial 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 said Reuters the UK saw “huge opportunities to deepen trade ties” with Pakistan and that a British trade minister was due to visit in the coming months.
Diplomats from two other Western countries also said their governments were considering strengthening economic ties following Islamabad’s peace efforts. They did not wish to be identified further.
“Pivot of peace”
Atif Mian, a professor of economics, public policy and finance at Princeton University, said Pakistan should avoid viewing diplomacy as another route to IMF-style deposits, refinancing or relief.
The real prize, he said, was a “pivot of peace” – external and internal – based on regional trade, energy ties with Iran and deeper integration with the Gulf and Turkey through exports, technology transfer and co-dependent industries.
Read also: Pakistan helped avoid wider conflict through US-Iran mediation, security sources say
Analysts said further economic gains would not resolve Pakistan’s deeper constraints.
“If structural reforms are not implemented, the country is on the verge of imploding in the coming decades,” said Adeel Malik, associate professor of development economics at the University of Oxford.
“There are deep-rooted grievances among the youth and declining middle classes against Pakistan’s ruling elite. The prevailing system has given the ruling elites a prolonged life, but has made the country socially and economically uncertain.”
