Pakistan says fiscal discipline and debt reforms strengthening economic buffers

Pakistan’s finance minister said disciplined fiscal policy, tax reforms and proactive debt management are improving the country’s economic buffers, according to government press releases issued on Monday.

Speaking at the AlUla Conference for Emerging Market Economies, Finance Minister Muhammad Aurangzeb said Pakistan’s fiscal strategy has been shaped by repeated boom and bust cycles, high debt levels and limited fiscal space, making it critical to preserve recent macroeconomic gains.

He said Pakistan has posted successive primary surpluses and reduced its fiscal deficit from around eight percent of gross domestic product to about 5.4 percent, with a further decline below five percent expected as consolidation continues.

Aurangzeb said rebuilding fiscal buffers is a practical necessity for Pakistan, citing the 2022 floods when the country had to seek international assistance even for rescue operations. He said subsequent floods were managed with domestic resources, highlighting the importance of strengthening fiscal capacity to absorb shocks.

On revenue, he said Pakistan’s tax to GDP ratio has increased from below ten percent to close to twelve percent through base broadening, compliance measures and digitization, including artificial intelligence based production monitoring systems aimed at reducing leakages and corruption.

He said tax policy has been separated from tax collection within the Ministry of Finance to ensure budget decisions are guided by economic policy considerations rather than revenue arithmetic alone, while maintaining fiscal discipline.

Aurangzeb said fiscal coordination remains complex due to Pakistan’s federal structure but noted that a national fiscal framework has been agreed and coordination with provinces is being strengthened.

On debt, he said Pakistan’s debt to GDP ratio has declined to around 70 percent from about 74 percent over the past three years, supported by liability management operations, maturity extensions and early repayments that reduced servicing costs and refinancing risks.

He said Pakistan has institutionalized regular debt sustainability analyses aligned with IMF and World Bank methodologies, improving risk assessment, creditor engagement and market confidence.

Aurangzeb also highlighted progress in domestic resource mobilization and initiatives to align debt management with climate and development objectives, including the issuance of a green sukuk and a sovereign sustainable financing framework.

He said fiscal consolidation is creating space for priority sectors such as human capital development, agriculture and information technology, adding that sustained institutional reforms and policy discipline are required to manage structural and climate related shocks while supporting growth.