ISLAMABAD: Pakistan will focus on meeting its external financing needs by speaking with foreign governments and lenders to draw foreign investment as well as seeking loan rollovers, the country’s finance minister told Reuters on Friday, as his government prepares to execute its new $7 billion International Monetary Fund agreement.
Pakistan and the IMF reached an agreement for the 37-month loan program this month. Tough measures such as raising tax on agricultural incomes and lifting electricity prices have prompted concerns about poor and middle class Pakistanis grappling with rising inflation and the prospect of higher taxes.
Pakistan has relied heavily on IMF programs for years, at times nearing the brink of sovereign default and having to turn to countries such as the United Arab Emirates and Saudi Arabia to provide it with financing to meet external financing targets set by the IMF.
Finance Minister Muhammad Aurangzeb said in an interview that external financing continued to be an important component, though the government was seeking to focus on more sustainable forms such as direct investment and climate financing.
“I think in the existing situation we can expect those (loan) rollovers to continue to take place ... we have requested extension of maturities,” Aurangzeb said.
Rollovers or disbursements on loans from Pakistan’s long-time allies Saudi Arabia, the United Arab Emirates and China, in addition to financing from the IMF, have helped Pakistan meet its external financing needs in the past.
The IMF said the new Extended Fund Facility program is subject to approval from its Executive Board and obtaining “timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.”
Aurangzeb said that meeting the external financing gap was “very manageable and very doable.”
He said Pakistan plans to expand its strategy beyond relying heavily on rollovers and toward foreign direct investment, including in the huge copper and gold Reko Diq mine in southern Pakistan. He added his government was working on identifying “bankable and investable” projects for Saudi Arabia and the United Arab Emirates, which have announced interest in billions of dollars in investment in Pakistan.
“That is what’s going to lead to sustainability, ” he said. “If we can’t get this executed in the next three years, we will not be able to get out of the ‘last’ program.”
Pakistan has been plagued by boom-and-bust cycles for decades, leading to more than 20 IMF bailouts since 1958. It is currently the IMF’s fifth-largest debtor, owing $6.28 billion as of July 11 according to IMF data.
Aurangzeb said the Reko Diq copper and gold mine project had drawn interest from the World Bank’s private investment arm, the International Finance Corporation(IFC), which had signalled it would invest a “large amount.”
Aurangzeb said that during a trip to China that he plans by the end of July, Islamabad will discuss power sector structural reforms with Beijing that have been suggested by the IMF. Beijing has set up over $20 billion worth of planned energy projects in Pakistan.
CLIMATE FINANCE
Pakistan has also agreed with the IMF to launch talks this year on financing under the fund’s Resilience and Sustainability Trust (RST) to draw financing for projects related to climate change.
Pakistan is one of the countries worst affected by climate change. Huge floods in 2022 killed hundreds of people and caused billions of dollars of damage in infrastructure and agriculture.
“We will start the discussions around that during this calendar year, possibly at the time of the first review, which will be in October, around the annual meetings in Washington,” said Aurangzeb, though he did not specify how much his government would request.
Pakistan has only successfully completed one long term Extended Fund Facility, in 2017. Aurangzeb said he planned to ensure Pakistan completed the current program, despite mounting political pressure and the inflationary impact of IMF-suggested reforms.
The minister, former head of Pakistan’s largest bank, also stressed that the government planned to push through the privatization of loss-making enterprises including national carrier Pakistan International Airlines (PIA).
Pakistan is looking for external financing avenues, finance minister says
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Pakistan is looking for external financing avenues, finance minister says
- Pakistan to meet external financing needs by speaking with foreign governments and lenders to draw foreign investment as well as seeking loan rollovers
- Finance Minister Muhammad Aurangzeb says government was seeking to focus on more sustainable forms such as direct investment and climate financing
Pakistan’s finance chief says country shifting from aid to trade, investment with Gulf nations
- Aurangzeb says remittances from the GCC topped $38 billion last fiscal year, projected at $42 billion this time
- He tells an international media outlet discussions on a free trade agreement with the GCC are at an advanced stage
ISLAMABAD: Pakistan is no longer seeking aid-based support and is instead pivoting toward trade- and investment-led partnerships, Finance Minister Muhammad Aurangzeb said in an interview with an international media outlet circulated by the finance division on Monday, acknowledging longstanding economic backing from Gulf countries.
Aurangzeb spoke to CNN Business Arabia at a time when Pakistan seeks to consolidate macroeconomic stability after a prolonged crisis marked by soaring inflation, currency pressure and external financing gaps.
Aurangzeb said the government’s economic direction, articulated by Prime Minister Shehbaz Sharif, aims to replace reliance on external assistance with sustainable growth driven by investment and exports, particularly from partners in the Gulf Cooperation Council (GCC), which includes Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain.
“We are not looking for aid flows anymore,” he said. “For us, we are very clear ... that going forward is really trade and investment, which is going to bring sustainability and be win-win for our longstanding bilateral partners in GCC and for Pakistan.”
“This FDI [foreign direct investment] is going to help us in terms of GDP growth [and] more employment opportunities as we go forward,” he continued. “So, you know, all hands are on deck at this point in time to make this materialize.”
Aurangzeb said Pakistan’s shift was underpinned by improving macroeconomic indicators following an 18-month stabilization program.
He noted that inflation, which peaked at 38 percent in 2023, has fallen to single-digit levels, while the country has posted primary fiscal surpluses and kept the current account deficit within targeted limits, adding that foreign exchange reserves now cover about 2.5 months of imports.
The finance chief described recent international assessments as external validation of the government’s reform path.
“All three international credit rating agencies are now aligned in terms of their upgrades and outlook for Pakistan this year,” he said, adding that the successful completion of the second review under the International Monetary Fund’s loan program, approved by the lending agency’s executive board, reinforced confidence in Pakistan’s economic management.
The finance minister said reforms across taxation, energy, state-owned enterprises, public finance and privatization were central to consolidating stability and supporting growth.
He pointed out Pakistan’s tax-to-GDP ratio had risen to about 10.3 percent from 8.8 percent at the start of the reform program and is on track to reach 11 percent, driven by efforts to widen the tax base to include under-taxed sectors such as real estate, agriculture and wholesale and retail trade, while tightening compliance through technology-based monitoring.
Aurangzeb also highlighted the role of the GCC in supporting Pakistan’s external position, particularly through remittances.
He said inflows reached about $38 billion last fiscal year and are projected to rise to nearly $42 billion this time, with more than half originating from GCC states, reflecting the contribution of Pakistani nationals working in the region.
The finance chief said Pakistan was actively engaging Gulf partners to attract investment in sectors including energy, oil and gas, mining, artificial intelligence, digital infrastructure, pharmaceuticals and agriculture, while discussions on a free trade agreement with the GCC were at an advanced stage.
