Pakistan may revise its economic outlook upward for fiscal year 2026-27 following the end of the Iran conflict, but it is too early to alter budget projections, Finance Minister Muhammad Aurangzeb said on Monday, citing lingering disruptions to global energy supply chains.
In an interview with Reuters, he said damage to regional energy infrastructure during the Iran war will continue to affect supply chains despite the signing of a U.S.-Iran agreement aimed at ending hostilities.
“We were looking at how we manage the second and third-order impact in case this conflict continues,” Aurangzeb told the Reuters news agency. “The energy infrastructure has been hit, and therefore it will take time before we return to normalcy in terms of supply chains,” he added.
While expressing optimism about Pakistan’s economic prospects, the minister said it was “way too premature” to revise the federal budget, which projects economic growth of 4% and inflation of 8.2% in FY27.
The budget, unveiled last week, seeks to maintain fiscal discipline under Pakistan’s $7 billion International Monetary Fund (IMF) program while supporting economic recovery. It includes an 18% increase in defense spending to Rs. 3 trillion and targets tax revenues of Rs. 15.3 trillion.
Speaking separately to Bloomberg Television, Aurangzeb said Pakistan’s economy had entered a recovery phase, with growth accelerating and inflation easing after a period of macroeconomic stabilization.
“We are in a good place on the fiscal side with the fiscal deficit at an all-time low and achieving a primary surplus,” he said. “On the foreign exchange reserves, we are on at least three months of import cover, but ultimately we have to move towards export-led growth,” he added.
The minister said the government’s strategy was to transition from economic stabilization to sustainable growth after implementing reforms and fiscal measures that helped restore confidence and secure IMF support. He also indicated that Pakistan might increase commercial borrowing in FY27 to rebalance its external debt portfolio without raising overall debt levels.
“Ideally what we want to do is to see if we can replace some of the bilateral through commercial,” he told Reuters. “We do not intend to increase the size of our external debt.”
Pakistan repaid $3.4 billion in bilateral deposits to the United Arab Emirates last month and has increasingly tapped commercial lenders in the Gulf. The government is also considering additional Panda bonds, Eurobonds, U.S. dollar-denominated debt and its first rupee-linked, dollar-settled bond issues, although final sizes have not yet been determined.
The FY27 budget projects $2.82 billion in commercial and Eurobond financing. Pakistan has already secured approval for up to $1 billion in Panda bonds following a $250 million inaugural issuance backed largely by the Asian Development Bank and the Asian Infrastructure Investment Bank.
Addressing emerging sectors, Aurangzeb said the government would prioritize regulation of cryptocurrencies, tokenized assets and digital exchanges before introducing taxation measures. “At some point we have to bring it into the taxation framework, but this was not the time to do it,” he said.
The minister also cautioned against projecting immediate gains from Pakistan’s growing defense exports despite rising international interest in the country’s military equipment following last year’s conflict with India. He said the government’s immediate priority remained meeting defense requirements given security challenges on both its eastern and western borders.
Pakistan’s economy has shown signs of recovery over the past year, supported by lower inflation, improved fiscal indicators and external financing inflows. The government believes the latest budget provides a roadmap for sustaining growth while preserving macroeconomic stability achieved under the IMF-supported reform program.