FinMin says can use commercial borrowing in 2027 to change creditor profile without increasing total external debt
Finance Minister Muhammad Aurangzeb speaks during a Reuters interview in Islamabad, Pakistan, June 15, 2026. PHOTO: REUTERS
Pakistan may improve economic projections for 2027 after the end of the Iran war, but it is still too early to revise the budget, Finance Minister Muhammad Aurangzeb said. Reutershours after the US and Iran signed an agreement to end the fighting.
Damaged energy infrastructure meant supply chains would take time to return to normal after the conflict pushed inflation back into double digits, Aurangzeb said.
“We looked at how we deal with the second, third order impact if this conflict continues,” he said. “The energy infrastructure has been hit. And so it will take time for us to return to normalcy in terms of supply chains.”
He added: “I see merit in what we have foreseen for next year,” but warned that it would be “far too soon” to revise the budget.
Presented in Parliament on Friday, Pakistan’s FY27 budget targets 4% growth and 8.2% inflation.
It raised defense spending 18% to Rs3 trillion ($10.8 billion) while relying on higher tax revenues to keep a $7 billion IMF program on track.
Commercial borrowing to change creditor profile
Islamabad can use commercial borrowing in fiscal year 2027 to change its creditor profile without increasing overall external debt, Aurangzeb added in comments on Monday.
“Ideally what we want to do is see if we can replace some of the bilateral through commercial,” he said. “We have no intention of increasing the size of our external debt.”
Pakistan repaid $3.4 billion in bilateral UAE deposits last month, but has also tapped the emirate’s commercial banks for financing, reflecting the creditor profile shift Aurangzeb wants to formalize.
Read: SBP keeps the policy rate at 11.5 per cent.
It is planning additional Panda Bond, Eurobond, US dollar and first rupee-linked, dollar-settled issues, although the sizes are yet to be decided, he said.
The FY27 budget envisages $2.82 billion in commercial and Eurobond financing, while Pakistan has approval for $1 billion equivalent in Panda bonds following a $250 million debut that was 95% supported by ADB and AIIB.
The former banker has presented three budgets
A former banker, Aurangzeb has presented three consecutive budgets, achieving a rare feat in Pakistan, where governments often fail to complete their terms and finance ministers are frequently replaced.
Interest has increased in Pakistan’s burgeoning defense industry after last year’s standoff with India, but Aurangzeb said it was too early to project any upward defense exports.
The government’s immediate focus is on allocations given two “active” borders, he added, as the South Asian nation is flanked by Afghanistan and India.
Pakistan’s defense manufacturing industry is running red-hot since its jets, drones and missiles achieved the coveted ‘combat-tested’ mark in the India conflict, attracting a number of buyers.
Pakistan has moved to formalize the digital asset sector this year, for example by signing pacts with Binance and World Liberty Financial.
Aurangzeb said Pakistan would regulate crypto, tokenization and exchange of digital assets before taxing the sector, saying revenue gains would follow once it was formalized.
“Yes, at some point we have to bring it into the tax time frame,” he added. “But this was not the time to do it.”
