FinMin says it can use commercial loans in 2027 to reprofile creditors 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 economic projections for 2027 after the end of the war with Iran, but it is still too early to revise the budget, Finance Minister Muhammad Aurangzeb said. Reutershours after the United States 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 sent inflation back into double digits, Aurangzeb said.
“We were looking at how we manage the second and third order impact should this conflict continue,” he said. “Energy infrastructure has been affected. And so it will be some time before we get back to normal in terms of supply chains.”
He added: “I see advantages in what we have projected for next year,” but warned that it would be “too premature” to review the budget.
Pakistan’s FY27 budget, presented in parliament on Friday, targets 4% growth and 8.2% inflation.
It increased defense spending by 18% to 3 trillion rupees ($10.8 billion), while relying on higher tax revenues to keep a $7 billion IMF program going.
Commercial loans to change the profile of creditors
Islamabad can use commercial loans in fiscal 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 part of the bilateral with the commercial,” he said. “We do not intend to increase the size of our external debt.”
Pakistan paid $3.4 billion in bilateral deposits from the UAE last month, but also turned to the emirates’ commercial banks for financing, reflecting the change in creditor profile that Aurangzeb wants to formalize.
Read: SBP maintains official interest rate at 11.5%
It plans more issuances of panda bonds, eurobonds, US dollars and first issuances linked to rupiah and settled in dollars, although the sizes have not yet been decided, it said.
The FY27 budget provides for $2.82 billion in trade finance and Eurobonds, while Pakistan has approval for the equivalent of $1 billion in Panda bonds after a $250 million debut backed 95% by the ADB and AIIB.
The former banker has presented three budgets
Aurangzeb, a former banker, has presented three consecutive budgets, achieving an unusual streak in Pakistan, where governments often fail to complete their terms and finance ministers are frequently replaced.
There has been increased interest in Pakistan’s burgeoning defense industry after last year’s conflict with India, but Aurangzeb said it was too early to project any benefits 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 is red-hot since its planes, drones and missiles earned the coveted “combat-proven” tag in the Indian conflict, attracting a large number of buyers.
Pakistan has taken steps to formalize the digital asset sector this year, for example signing pacts with Binance and World Liberty Financial.
Aurangzeb said Pakistan would regulate cryptocurrency, tokenization and digital asset exchanges before taxing the sector, and said revenue gains would come once it was formalised.
“Yes, at some point we will have to include it in the fiscal calendar,” he added. “But this was not the time to do it.”
