KARACHI: Finance Minister Muhammad Aurangzeb on Monday highlighted Pakistan’s recent fiscal progress, ongoing reforms and strategy to build buffers while sustaining growth at the AlUla Conference for Emerging Market Economies, underscoring the importance of institutional strengthening in navigating economic and climate-related shocks.
The second edition of the annual AlUla conference was launched by the Saudi Arabia’s Ministry of Finance and the International Monetary Fund (IMF) on Sunday. The conference brings together economic decision-makers, finance ministers, central bank governors, leaders of international financial institutions and a select group of experts and specialists from around the world.
Pakistan, which nearly defaulted on its foreign debt obligations in 2023, is currently making efforts to stabilize its economy under a $7 billion International Monetary Fund (IMF) program. The program, agreed in Sept. 2024, accompanied reforms such as privatization of loss-making, state-owned enterprises (SOEs), tax regime overhaul and ending various subsidies for fiscal consolidation.
Attending a high-level panel discussion “Fiscal Policy in a Shock‑Prone World” on the 2nd day of the AlUla Conference, Aurangzeb shared Pakistan’s experience in managing structural constraints, strengthening revenue mobilization, reducing debt vulnerabilities, and responding to shocks while protecting priority development spending.
“Pakistan’s fiscal strategy has been shaped by a history of boom-and-bust cycles, persistent structural deficits, high debt levels, and limited fiscal space,” he said, stressing that it has been critical to carefully safeguard the fiscal progress achieved over the past two to three years.
“Pakistan has delivered successive primary surpluses and reduced its fiscal deficit from around 8 percent of GDP (gross domestic product) to approximately 5.4 percent, with the current trajectory pointing toward a further reduction below five percent.”
This year’s conference highlighted the rapid transformations in the global economy and challenges and the opportunities they presented for emerging market economies, particularly in international trade, monetary and financial systems.
Aurangzeb stressed the discussion around fiscal buffers is not academic for Pakistan but rooted in lived experience as a climate-vulnerable country.
Recalling the catastrophic floods of 2022, he noted that Pakistan was forced to make an immediate international appeal even for rescue and relief operations. In contrast, he said, the country was able to mobilize its own resources despite limited fiscal space during the large-scale floods affecting multiple provinces and river systems this year, demonstrating the practical value of rebuilding fiscal buffers to absorb exogenous shocks.
On the revenue side, he outlined sustained efforts to expand the tax base and strengthen compliance.
“Pakistan’s tax-to-GDP ratio has risen from below 10 percent to close to 12 percent,” the minister said, highlighting the transformation of the tax authority through reforms in people, processes and technology, including the use of AI-led production monitoring systems across various sectors to improve enforcement, curb leakages and reduce corruption by minimizing human intervention.
“The tax policy function has been separated from tax collection and placed within the Ministry of Finance to ensure that budgetary decisions are guided by economic value and policy considerations rather than purely arithmetic targets, while maintaining overall fiscal discipline.”
About expenditure management, the finance minister noted that Pakistan’s federal structure adds complexity, requiring close coordination between the federation and provinces. He shared that a national fiscal framework has been agreed upon and that work is ongoing to strengthen fiscal coordination and discipline across all tiers of government.
“Pakistan’s debt-to-GDP ratio, which had reached around 74 percent, has been reduced to approximately 70 percent,” he said, underscoring ongoing domestic liability management operations aimed at lowering debt servicing costs, which remain the single largest expenditure item in the budget.
“Continued fiscal discipline would further ease debt pressures and help create additional fiscal space.”
Pakistan faced a prolonged economic crisis in recent years, marked by fiscal pressure, high debt levels and balance-of-payments difficulties. Officials now say that decreasing levels of inflation and higher foreign exchange reserves reflect the government’s prudent fiscal policies and debt management.
“The fiscal space created through consolidation and reforms is being directed toward priority growth-enabling sectors, including human capital development, agriculture, information technology, and other areas with strong growth potential,” Aurangzeb said, adding that rebuilding buffers, dampening pro-cyclicality, and sustaining growth require persistence, institutional reform and disciplined policymaking, particularly for countries facing repeated structural and climate-related shocks.
