Pakistan's Finance Minister Eyes Economic Upside from US-Iran Deal, Cautions on Budget Revisions
Pakistan's Finance Minister Muhammad Aurangzeb anticipates potential economic improvements for 2027 following the US-Iran deal to end hostilities, though he stated it is too early to revise the upcoming budget. Aurangzeb noted that damaged energy infrastructure and disrupted supply chains, which pushed inflation into double digits, would require time to normalize. He outlined Pakistan's strategy to shift its creditor profile in fiscal year 2027 by replacing bilateral debt with commercial borrowing, without increasing overall external debt, and detailed plans for various bond issues.
Pakistan's Finance Minister Muhammad Aurangzeb has indicated that the country could see improved economic projections for 2027 after the recent US-Iran deal to cease fighting. However, he emphasized that it is currently premature to revise the budget, according to comments made to Reuters.
Aurangzeb highlighted the impact of damaged energy infrastructure, which has disrupted supply chains and contributed to double-digit inflation. He stated that a return to normalcy in supply chains would take time.
The budget for the upcoming financial year, presented in Parliament on Friday, targets a growth rate of 4 percent and an inflation rate of 8.2 percent. It includes an 18 percent increase in defense spending, reaching Rs3 trillion, and relies on higher tax revenue to maintain a $7 billion International Monetary Fund (IMF) program.
In separate comments on Monday, Aurangzeb detailed Islamabad's plan to use commercial borrowing in fiscal year 2027. This strategy aims to change Pakistan's creditor profile by replacing some bilateral debt with commercial financing, without increasing the overall external debt burden. Pakistan recently repaid $3.4 billion in bilateral deposits from the United Arab Emirates and has sought financing from UAE commercial banks.
The country plans further issues of Panda Bonds, Eurobonds, US dollar bonds, and its first rupee-linked, dollar-settled issues, with specific sizes yet to be determined. The FY27 budget allocates $2.82 billion for commercial and Eurobond financing. Pakistan has also secured approval for $1 billion equivalent in Panda bonds, following a $250 million debut issue that was 95 percent backed by the Asian Development Bank and the Asian Infrastructure Investment Bank.
Regarding the defense industry, Aurangzeb noted a surge in interest after last year's conflict with India, but cautioned that it is too early to project any export upside. He stated that the government's immediate focus remains on allocations due to two active borders with Afghanistan and India.
Pakistan has also begun formalizing its digital asset sector this year, including signing agreements with entities like Binance and World Liberty Financial. Aurangzeb explained that Pakistan intends to regulate cryptocurrency, tokenization, and digital-asset exchanges before implementing taxation, expecting revenue gains to follow once the sector is formalized, but noted that now is not the time for taxation.
According to Dawn Pakistan, this information stems from an interview given by Finance Minister Muhammad Aurangzeb to Reuters.
