ISLAMABAD: Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb on Wednesday said Pakistan’s fiscal deficit had declined to 2.6 percent of GDP from a peak of 12.5 percent, while tax revenues increased by 40 percent over the past two years.
The minister was talking at a penal discussion on “Mitigating Sovereign Risks in Market-Access Countries” at the World Bank–IMF Annual Meetings 2026, Bangkok.
He attributed the economic turnaround to fiscal discipline, revenue mobilisation, debt management and structural reforms.
READ MORE: Pakistan to refinance short-term external debt to reduce rollover risks: Aurangzeb
The minister said the country 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 percent, had fallen to single digits before recently moving into the 10 percent range amid the ongoing conflict, he added.
Aurangzeb said foreign exchange reserves had improved from a level covering just two weeks of imports to approximately three months of import cover, strengthening the country’s capacity to manage domestic and external economic shocks.
He identified domestic revenue mobilisation as the starting point of the recovery, noting that Pakistan’s tax-to-GDP ratio had increased from around 8.5 percent to 10.3 percent.
He stressed the need to broaden the tax base, improve tax administration and leverage technology and process reforms to enhance revenue collection.
The minister acknowledged that securing 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.
Discussing public debt, Aurangzeb said Pakistan’s overall debt-to-GDP ratio had declined from around 75 percent to 68 percent. Given that debt servicing remained the largest item in the federal budget, the government had undertaken domestic debt liability-management operations, including buybacks and extending maturities, 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 USD3 billion international bond in the first week of September had benefited from favourable market conditions, but stressed that such opportunities required systematic planning and preparedness.
Regarding engagement with the International Monetary Fund (IMF), the 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 in 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. The government viewed the reform agenda as Pakistan’s own programme, with the IMF providing support and financing, rather than reforms being pursued merely to meet external conditions.
Acknowledging resistance to changes in the status quo, Aurangzeb 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 the country remained on course.
The minister said rating upgrades and the restoration of market access had provided external validation of Pakistan’s economic direction, adding that the government was committed to maintaining the reform momentum.
He emphasised that macroeconomic stability, although essential, was only the foundation for recovery, and that Pakistan now needed to transition towards sustainable economic growth to ensure that the benefits of reforms reached the wider population.