Finance Minister Muhammad Aurangzeb credits fiscal discipline and structural reforms for Pakistan’s economic recovery, while stressing the need to broaden the tax base, manage debt and sustain growth.
ISLAMABAD: Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb on Wednesday said Pakistan’s fiscal deficit had declined to 2.6 per cent of gross domestic product (GDP) from a peak of 12.5 per cent, while tax revenues had increased by 40 per cent over the past two years.
The minister made these remarks during a panel discussion titled “Mitigating Sovereign Risks in Market-Access Countries” at the World Bank–International Monetary Fund (IMF) Annual Meetings 2026 in Bangkok.
Aurangzeb attributed the economic turnaround to fiscal discipline, revenue mobilisation, debt management and structural reforms.
He said Pakistan had recorded three consecutive years of primary surpluses, with the fiscal deficit reaching a 22-year low in the last fiscal year.
Inflation, which had peaked at 38 per cent, had fallen to single digits before recently moving into the 10 per cent range amid the ongoing conflict, he added.
The finance minister said foreign exchange reserves had improved from a level covering barely two weeks of imports to approximately three months of import cover, strengthening the country’s capacity to manage domestic and external economic shocks.
Pakistan’s tax-to-GDP ratio improves
Aurangzeb identified domestic revenue mobilisation as the starting point of Pakistan’s economic recovery, noting that the tax-to-GDP ratio had increased from around 8.5 per cent to 10.3 per cent.
He stressed the need to broaden the tax base, improve tax administration and leverage technology and process reforms to enhance revenue collection.
However, the minister acknowledged that ensuring tax compliance remained a major challenge, observing that persuading people to pay taxes was among the most difficult aspects of economic reform.
He also highlighted expenditure reduction and privatisation as important components of the government’s fiscal consolidation efforts.
Public debt ratio falls to 68% of GDP
Discussing public debt, Aurangzeb said Pakistan’s overall debt-to-GDP ratio had declined from around 75 per cent to 68 per cent.
As debt servicing remained the largest item in the federal budget, the government had undertaken domestic debt liability-management operations, including buybacks and maturity extensions, to reduce borrowing costs and create fiscal space for other priorities.
On external debt, he said Pakistan had regained access to international capital markets after a gap of four years.
Under its medium-term debt strategy, the government aimed to avoid increasing the overall stock of external debt while extending maturities, reducing rollover risks and moving towards a more sustainable debt profile.
Aurangzeb noted that Pakistan’s issuance of a $3 billion international bond in the first week of September had benefited from favourable market conditions. However, he emphasised that taking advantage of such opportunities required systematic planning and preparedness.
IMF programme focuses on structural reforms
Discussing Pakistan’s engagement with the IMF, the finance minister said the government had sought to use the Extended Fund Facility (EFF) to make macroeconomic stability more durable and advance long-delayed structural reforms.
These reforms cover taxation, energy, tariffs, state-owned enterprises and pensions.
He said the key difference from previous IMF programmes was the ownership of reforms at the political leadership level, particularly by the prime minister.
According to Aurangzeb, the government regarded the reform agenda as Pakistan’s own programme, with the IMF providing support and financing, rather than treating reforms merely as conditions imposed by an external institution.
Acknowledging resistance to changes in the status quo, he said structural reforms required political commitment and sustained discipline.
He added that the IMF mission’s departure on October 7 following a staff-level agreement, covering quantitative and structural benchmarks, demonstrated that Pakistan remained on course.
Pakistan aims to sustain economic recovery
Aurangzeb said credit rating upgrades and the restoration of access to international capital markets had provided external validation of Pakistan’s economic direction.
He reaffirmed the government’s commitment to maintaining the reform momentum and strengthening the country’s economic fundamentals.
However, the finance minister emphasised that macroeconomic stability, although essential, represented only the foundation for recovery.
Pakistan now needed to transition towards sustainable economic growth to ensure that the benefits of economic reforms reached the wider population.
He said continued fiscal discipline, stronger revenue mobilisation, responsible debt management and structural reforms would remain important to consolidating economic gains and supporting the country’s longer-term growth prospects.