Finance Minister Muhammad Aurangzeb has ruled out pursuing liquidity-fuelled, consumption-led economic growth, saying Pakistan must prioritise sustainable, export-led expansion and continue with tariff reforms to improve the competitiveness of its industries.
The finance minister was speaking at the Lahore University of Management Sciences (Lums) on Saturday at an event organised by the American Business Forum (ABF). ABF President Osman Khalid Waheed, former State Bank governor Raza Baqir and Habib Group Vice Chairman Salman Burni also spoke.
Aurangzeb said Pakistan could not afford to repeat the cycle of import-dependent growth that had previously led to balance-of-payments problems and forced the country to seek support from lenders of last resort.
He said the government was committed to continuing tariff reforms, primarily to reduce the cost of raw materials and intermediate goods for exporters, despite concerns over the timing of the measures.
“We are very clear: no matter how much pressure there is, we are not going to go for liquidity-fuelled, consumption-led growth,” he said, adding that Pakistan needed to avoid another cycle in which a temporary acceleration in economic activity was followed by a balance-of-payments crisis.
Aurangzeb said the government had attempted to provide a direction towards export-led growth in the latest budget through measures including the elimination of super taxes, reductions in tax slabs and financing for exporters at 4.5 per cent.
On tariff reforms, he said the government had protected domestic industries for too long without sunset clauses and that the existing approach could not continue indefinitely.
“We are in year two of the tariff reform, and we are going to continue with that; there is no turning back,” he said.
The finance minister also stressed that economic growth needed to generate employment, pointing to the contrast between Pakistan’s growth trajectory and that of its neighbour, where growth of 7 to 8pc, he argued, had not translated into sufficient job creation.
“That’s why you see people there where they are,” he said, emphasising that the sectors driving growth must also address unemployment.
Reflecting on discussions at international forums in New York, London and the annual meetings of the World Bank and the International Monetary Fund (IMF) in Bangkok, Aurangzeb said the global economy had remained resilient but faced an uncertain and worrying outlook.
He identified growing differences in economic fortunes between oil-exporting and oil-importing countries, as well as economies benefiting from artificial intelligence, as key themes in discussions on global growth.
Energy shocks and the El Nino weather phenomenon had featured prominently in discussions, he said, warning that their effects were intensifying and contributing to food-security concerns in some parts of the world.
He also highlighted high debt levels, limited fiscal space in some economies and the growing importance of digital infrastructure and labour-market preparedness for artificial intelligence.
As trade fragmentation and geopolitical polarisation intensified, regional corridors and regional blocs were emerging as significant opportunities, he said, adding that these developments could be particularly important for Pakistan.
The finance czar said Pakistan had made significant progress in reducing its fiscal and external imbalances, with the combined twin deficits falling from 12.5pc of gross domestic product (GDP) to 2.6pc by the end of the last fiscal year.
He said the fiscal deficit had dropped to a 22-year low, while the country had recorded primary surpluses for three consecutive years. The current account deficit narrowed to around 0.1pc of GDP, supported by remittances and IT exports.
Aurangzeb said IT export services had risen from less than $1 billion to $4.6bn and were projected to reach $5.5bn in the current fiscal year. Foreign exchange reserves had improved to over three months of import cover, compared with two weeks during the crisis.
Citing three credit-rating upgrades since April last year, he said a recent Panda bond had attracted an order book twice its size, reflecting investor confidence beyond Pakistan’s current IMF programme, due to end in October next year.
He further said that Pakistan had managed immediate energy-supply challenges amid the continuing Middle East conflict, with supplies secured through November and arrangements for winter underway.
He said the government had shifted from blanket subsidies to targeted support, citing the high cost of universal subsidies.
Assuming an average household size of four to five people, the programme had reached an estimated 40 million to 50 million people, he said, adding that energy and gas supplies remained areas requiring attention.
The minister maintained that government borrowing had placed a disproportionate burden on the banking sector, but domestic debt-management operations had helped reduce debt-servicing costs to Rs6.9 trillion against a budgeted Rs8.2tr in the last fiscal year.
He said external debt payments had declined from $26.5 billion last year to $21.5bn in the current fiscal year and were expected to fall further. New external borrowing was largely aimed at replacing existing obligations, rather than increasing the debt burden.
Aurangzeb also highlighted pension reforms, saying new entrants to the civil bureaucracy had shifted from defined-benefit to defined-contribution schemes, while discussions with the armed forces were ongoing.
The finance minister said the government has identified climate change and population growth as major challenges for Pakistan, urging measures to reduce the country’s 2.55pc population growth rate. He cited Bangladesh, Indonesia and Iran as examples, saying all three had reduced their population growth rates to below 1pc over a decade. He stressed women’s education, workforce participation and engagement with religious scholars as key measures.
Aurangzeb said restoring investor confidence required macroeconomic stability and the clearance of around $4 billion in outstanding dividend and profit repatriation obligations.
He also highlighted improving domestic investment, citing 11 initial public offerings last year – a 20-year high – and five in the current year.
The finance minister said harmonising federal and provincial regulatory frameworks was essential to attract investment, as businesses often faced differing requirements at both levels.
He stressed that reforms in taxation, energy and financing were necessary to sustain growth, improve export competitiveness and create jobs.