FinMin could use commercial borrowing in 2027 to change the creditor profile without increasing overall external debt
Finance Minister Muhammad Aurangzeb speaks during an interview with Reuters in Islamabad, Pakistan, June 15, 2026. PHOTO: REUTERS
Pakistan could improve its 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 United States and Iran signed a deal to end the fighting.
Damaged energy infrastructure meant supply chains would take time to return to normal, after the conflict pushed inflation into double digits, Aurangzeb said.
“We were thinking about how we would deal with the second or third order impact in case this conflict continued,” he said. “Energy infrastructure has been affected, so it will take time to get back to normal in terms of supply chains.”
He added: “I see benefits in what we have planned for next year,” but warned it would be “far too premature” to revise the budget.
Pakistan’s FY27 budget, presented to Parliament on Friday, targets growth of 4% and inflation of 8.2%.
He increased defense spending by 18 percent, to 3 trillion rupees ($10.8 billion), while relying on higher tax revenues to keep a $7 billion IMF program on track.
Commercial loan to change creditor profile
Islamabad could resort to commercial borrowing in fiscal 2027 to change its creditor profile without increasing overall external debt, Aurangzeb added in his comments on Monday.
“Ideally what we want to do is see if we can replace some of the bilateral agreements with trade agreements,” he said. “We do not intend to increase the amount of our external debt.”
Pakistan repaid $3.4 billion in UAE bilateral deposits last month, but has also tapped the Emirates’ commercial banks for financing, reflecting the change in creditor profile that Aurangzeb wants to formalize.
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It plans further issues of Panda bonds, Eurobonds, US dollars and rupee-linked and dollar-settled debut issues, although their size has not yet been decided, he said.
The FY27 budget provides $2.82 billion in trade financing and Eurobonds, while Pakistan approved the equivalent of $1 billion in Panda bonds after an initial $250 million backed 95% by the ADB and AIIB.
A former banker presented three budgets
A former banker, Aurangzeb presented three consecutive budgets, achieving a rare achievement in Pakistan, where governments often fail to complete their terms and where finance ministers are frequently replaced.
Interest in Pakistan’s booming defense industry grew after last year’s conflict with India, but Aurangzeb said it was too early to predict any rise in 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 has been booming since its jets, drones and missiles earned the coveted “battle-tested” label during the Indian conflict, attracting many buyers.
Pakistan has moved to formalize the digital assets sector this year, for example by signing pacts with Binance and World Liberty Financial.
Aurangzeb said Pakistan would regulate crypto, tokenization and digital asset trading before taxing the sector, saying revenue gains would follow once the sector was formalized.
“Yes, at some point it will have to be integrated into the fiscal calendar,” he added. “But now wasn’t the time to do it.”
