Pakistan may improve FY27 economic outlook after Iran war, but budget targets unchanged

Pakistan may revise upward its economic outlook for fiscal year 2026–27 following the end of the Iran conflict, but it is too early to alter budget assumptions given ongoing disruptions to global energy supply chains, Finance Minister Muhammad Aurangzeb said on Monday.

Speaking to Reuters, Aurangzeb said damage to regional energy infrastructure would continue to weigh on supply networks despite a recent US-Iran agreement ending hostilities.

When will Pakistan revise its FY27 economic projections?

Pakistan will not revise its FY27 budget assumptions in the near term, according to Finance Minister Aurangzeb.

While the end of the Iran conflict creates room for improvement, energy infrastructure damage means supply chains will take time to normalize. "It will take time before we return to normalcy in terms of supply chains," he said.

What are Pakistan's current FY27 budget targets?

The FY27 budget, presented last week, projects 4% economic growth and 8.2% inflation. It includes an 18% increase in defense spending to 3 trillion rupees and targets tax revenues of 15.3 trillion rupees. The framework is designed to balance fiscal discipline under Pakistan's $7 billion IMF program with continued economic recovery.

In a separate interview with Bloomberg Television, Aurangzeb said Pakistan's economy had entered a recovery phase, supported by easing inflation, improved fiscal indicators and stabiliizng external accounts. "We are in a good place on the fiscal side with the fiscal deficit at an all-time low and achieving a primary surplus," he said. He added that foreign exchange reserves now cover at least three months of imports, but stressed that the longer-term priority remained a shift toward export-led growth.

What are Pakistan's plans for global bond issuances in FY27?

Pakistan is exploring Panda bonds, Eurobonds, US dollar-denominated instruments, and its first rupee-linked, dollar-settled bond, though final issuance sizes have yet to be determined. The FY27 budget projects $2.82 billion in commercial and Eurobond financing.

Pakistan has already secured approval for up to $1 billion in Panda bonds, following a $250 million initial issuance backed by the Asian Development Bank and the Asian Infrastructure Investment Bank.

Aurangzeb also indicated Pakistan may increase reliance on commercial borrowing in FY27 to rebalance its external debt profile without expanding overall debt levels. Pakistan repaid $3.4 billion in bilateral deposits to the UAE last month and has increasingly tapped Gulf-based commercial lenders. "Ideally what we want to do is to see if we can replace some of the bilateral through commercial," he said. "We do not intend to increase the size of our external debt."

What did Aurangzeb say about crypto taxation and defense exports?

On emerging sectors, Aurangzeb said the government would prioritize regulation of cryptocurrencies, tokenized assets and digital exchanges before considering any taxation measures. "At some point we have to bring it into the taxation framework, but this was not the time to do it," he said.

He also cautioned against expecting immediate gains from Pakistan's defense exports, despite rising international interest following last year's conflict with India, saying domestic security needs remained the priority given challenges on both eastern and western borders.