Pakistan finance minister says Gulf energy infrastructure attacks are ‘worrying’ for outlook

Pakistan’s finance minister Muhammad Aurangzeb told AFP on Saturday that attacks on Gulf energy infrastructure are “worrying” for the country’s longer-term economic outlook.

Speaking on the sidelines of the IMF-World Bank Annual Meetings in Bangkok, he said Pakistan has so far withstood the energy price shock caused by the Iran war.

What did Pakistan’s finance minister say about attacks on Gulf energy infrastructure?

Aurangzeb said damage to energy sites would delay a return to economic normalcy, even if things subside. He called it worrying when energy infrastructure starts getting hit and said he did not know where that would go. The Houthis in Yemen have repeatedly attacked Saudi infrastructure in recent days.

“What is now (the) worrying part of it is when the energy infrastructure starts getting hit,” he said.

“I, to be very honest, I don’t know where that would go. But one thing is very clear: that if the infrastructure continues to get hit, the return to normalcy, even if things subside, will take longer.”

Since the United States and ally Israel launched the war on Iran in February, global energy prices have surged as Tehran’s retaliatory action has targeted Washington’s Gulf allies and curtailed oil and gas supplies. With Yemen’s civil war flaring back to life as well, the Houthis have attacked Saudi energy facilities and airports.

Has Pakistan avoided an energy shortage during the Iran war?

Pakistan had procured enough energy supplies to last through November and was now planning for the winter months, when household needs typically spike. “The first-order impact has been negotiated well by Pakistan,” Aurangzeb said.

“We’ve had no shortage, no queues at the gas stations, and no law and order situation, which at times we have seen in some of the countries.”

He added that unless the government saw “an absolute dire need”, it would not be procuring spot cargoes on the LNG front, which tend to be far more expensive than previously contracted shipments.

How much is Pakistan relying on the IMF?

Pakistan has been a frequent customer at the International Monetary Fund (IMF), the lender of last resort to countries on the brink of default. It is currently in the midst of its 25th programme with the Fund since gaining independence in 1947, at least 11 of them outright bailouts.

The current programme totals around $7 billion over three years, with the Fund reaching an agreement this month to release a $1.2 billion tranche. With global debt stocks running high, the Fund has called at this year’s annual meetings on all economies, even those most vulnerable to the Iran war shock, to engage in fiscal consolidation to avoid a potential crisis.

“Fortunately for us, we have been on this fiscal consolidation path for a while,” Aurangzeb said with a rueful smile.

What reforms is Pakistan making under the IMF program?

The country’s tax revenues have grown significantly in recent years. The finance minister said the government was targeting the theft of taxes by private sector businesses that collected sales tax from consumers but never deposited it in government accounts.

Such theft accounted for billions of dollars, Aurangzeb said, adding that there remained “room for improvement” on increasing income tax collection as well. He said the government’s reform agenda had faced resistance from industry, lobbying groups and vested interests.

“Every reform, everything that you try to do when you try to change the status quo, there is pushback,” he said.

One of the major pillars of the IMF’s programme criteria is privatising state-owned assets in Pakistan, where the military runs a vast empire of businesses in sectors from real estate to fertiliser. Asked about those companies, Aurangzeb denied that they were receiving state funding.

“As far as we are concerned, whichever commercial enterprises (the military) are running, they are running on a standalone basis and profitable on their own basis,” he said.

“So, I can confirm to you, we are not providing any funds from the exchequer.”