Key Points
- Pakistan remains committed to $7 billion IMF programme, relying on higher tax revenues
- Government considers shifting from bilateral to commercial borrowing without increasing external debt
- Plans include Panda bonds, Eurobonds, dollar issues and rupee-denominated instruments
- Energy infrastructure damage from regional conflict expected to delay supply chain normalisation
ISLAMABAD: Pakistan could see an upside in its economic projections for 2027 after the end of the Iran conflict, but it is still too early to revise the federal budget, Finance Minister Muhammad Aurangzeb said.
Answering Reuters questions following a US-Iran agreement to end fighting, Aurangzeb said the regional conflict had disrupted energy infrastructure and pushed inflation back into double digits, warning that supply chains would take time to stabilise.
“We were looking at how we manage the second, third-order impact in case this conflict continues,” he said.
“The energy infrastructure has been hit. And therefore, it will take time before we return to normalcy in terms of supply chains.”
He added that there were “upsides” in the government’s projections for the coming year, but said any revision of fiscal assumptions would be “way too premature”.
Pakistan’s FY27 budget, presented in parliament on Friday, sets a growth target of 4 per cent and inflation at 8.2 per cent.
It also increases defence spending by 18 per cent to Rs 3 trillion ($10.8 billion), as authorities seek to balance security needs with fiscal constraints under a $7 billion International Monetary Fund programme.
Pakistan’s annual fiscal policy is under debate in the National Assembly, to pass the Finance Bill 2026 into an Act of Parliament before July 1, 2026.
Aurangzeb also highlighted a shift in financing strategy, saying Islamabad may rely more on commercial borrowing in fiscal year 2027 to reshape its creditor profile without expanding overall external debt.
“Ideally what we want to do is to see if we can replace some of the bilateral with commercial,” he said, adding that the government did not intend to increase the size of external debt.
Pakistan recently repaid $3.4 billion in deposits to the United Arab Emirates, even as it continues to access commercial bank financing from Gulf partners.
The government is also preparing new issuances, including Panda bonds, Eurobonds, US dollar-denominated instruments, and a planned rupee-linked, dollar-settled bond.
The FY27 budget envisages $2.82 billion in commercial and Eurobond inflows, while authorities have already secured approval for $1 billion in Panda bonds following a $250 million debut, supported largely by multilateral backing.
Aurangzeb, a former banker, has now presented three consecutive budgets, an uncommon continuity in Pakistan’s often volatile fiscal leadership.
Regarding the external environment, he said it was too early to assess potential gains for defence exports despite increased global interest following last year’s victorious conflict with India.
He noted that Pakistan’s immediate priority remained budgetary allocation management due to “active” borders with Afghanistan and India.
Separately, he said Pakistan would first regulate the digital asset sector, including crypto and tokenisation platforms, before introducing taxation measures.
“Yes, at some point we have to bring it into the taxation timeframe,” he said. “But this was not the time to do it.”
