Analysts say diplomatic advances could attract investment but are unlikely to solve structural problems plaguing the economy.
US 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 Lake Lucerne, Switzerland, June 21, 2026. PHOTO: REUTERS
Pakistan’s role as mediator of a peace deal in the US-Iran war has generated widespread diplomatic recognition that could bring Islamabad some economic benefits, but analysts question whether such developments can help address flaws in its economy.
Prime Minister Shehbaz Sharif and Army Chief Field 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?” US Vice President JD Vance said upon seeing 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 off global oil supplies and wrecked the global economy.
The breakthrough has raised Pakistan’s profile and analysts say the country of 250 million people has a chance to turn that goodwill into some gains for an economy scarred by decades of booms and busts. But they said any benefits were unlikely to fix 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 next fiscal year, compared with a projected growth of 3.7% in fiscal year 2026, which ends in June, and average inflation of 6.7% in the July-May period of the outgoing year.
Read: The economic reward of the peace process
“A nation that offers stability at home and helps promote stability abroad becomes a more credible destination for investment,” 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 an exceptionally favorable position to attract investment into its people, infrastructure, technology and future growth sectors.”
Many analysts expect some largesse from the United States, although there have been no signs of any windfall 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 “tremendous potential to be a more integrated part of the broader Middle East” and eventually forge broader economic partnerships in the region that would also encompass defense.
Another possibility was that sanctions relief on Iran could allow “huge trade between Iran and Pakistan,” particularly across its land border with Balochistan, said Miftah Ismail, a former finance minister.
Seen this before
After the September 11, 2001, attacks and the U.S. invasion of Afghanistan, alignment with Washington helped secure debt rescheduling for more than a dozen bilateral creditors, renewed support from the IMF and other multilateral lenders, and U.S. assistance. But Pakistan failed to take advantage of the situation 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 a crucial difference: that moment came at “the beginning of a long and ruinous war in which Pakistan had to play a frontline role,” while this time “Pakistan is playing the role of peacemaker.”
That distinction means Pakistan’s influence this time comes from being useful to multiple parties simultaneously: Washington, Tehran, the Gulf States, Türkiye and China.
Former Finance Minister Ismail said the diplomatic role had improved Pakistan’s international prestige, but that had no effect on the high costs, weak exports and external payments that keep it dependent on the IMF. “Our house is in such disarray that foreigners cannot help us unless we help ourselves,” he said. “Nothing here in this war changes that and we will continually depend on the IMF.”
Read more: Is Pakistan becoming a middle power?
Asim Ijaz Khawaja, a Harvard University professor 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 pursue academic exchanges and scholarships, preferential market access for textiles and IT services, technology transfer and green investment frameworks.
Hamish Falconer, British Middle East minister, thanked Islamabad for its peacekeeping role during a visit last week and said Reuters The UK saw “enormous scope to deepen trade links” with Pakistan and 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 in the wake of Islamabad’s peace efforts. They did not want to be identified further.
‘Peace Pivot’
Atif Mian, a professor of economics, public policy and finance at Princeton University, said Pakistan should avoid treating diplomacy as another route to IMF-style deposits, refinancing or relief.
The real prize, he said, was a “peace pivot” (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.
Also read: Pakistan helped avoid wider conflict through US-Iran mediation, security sources say
Analysts said any new economic advances would not address Pakistan’s deepest limitations.
“If structural reforms are not implemented, the country is headed for implosion in the coming decades,” said Adeel Malik, associate professor of development economics at the University of Oxford.
“There are deep-seated grievances among the youth and shrinking middle classes against Pakistan’s ruling elite. The prevailing system has given the ruling elites a long chance at life, but has made the country socially and economically insecure.”
