Pakistan's economy has 'stopped bleeding', Finance Minister tells IMF meeting

Muhammad Aurangzeb urges country to stay course on structural reforms

Muhammad Aurangzeb, Pakistan's Finance Minister, at the annual meetings of the IMF and World Bank in Washington. Bloomberg

Just six months into the job, Pakistan’s Finance Minister Muhammad Aurangzeb said his country has “stopped the bleeding”, and that most of the macroeconomic variables for the struggling economy have moved in the right direction.

“On the fiscal side, we’ve had a private surplus after 18 or 19 years, the current account deficit was less than $1 billion last fiscal year and we’ve just completed the first quarter where we’ve had a current account surplus for August and September,” he said at the International Monetary Fund and World Bank annual meetings in Washington on Tuesday.

Mr Aurangzeb's comments come almost two months after the IMF’s executive board approved a $7 billion bailout package to help support Pakistan's struggling economy.

In June last year, Pakistan secured a $3 billion from the IMF to avoid defaulting on its debt. The IMF had previously urged Pakistan to focus on investments in health, education and infrastructure to help blunt and eventually turn around the sluggish economy.

Since joining the multilateral lender in 1950, Pakistan has received 24 economic bailouts.

Jihad Azour, director of the Middle East and Central Asia sector at the IMF, hosted and interview with Mr Aurangzeb, and asked what different approaches Pakistan had taken with the most recent bailout package.

“We're prioritising taxation, GDP [gross domestic product], lowering energy costs and privatisation,” he said. Mr Aurangzeb said enforcement and compliance for taxes has been stepped up, with penalties taken to “punitive levels”.

He said the number of tax filings has doubled in the past 12 months, and that Pakistan would soon get rid of its “non-filer” classification that allowed for so much tax complacency.

“We're going to make legislation so we remove 'non-filer' so that whomever remains a 'non-filer', they're not able to invest in property, purchase vehicles, open accounts or do international travel,” Mr Aurangzeb said.

Mr Aurangzeb, who was chief executive of Pakistan's largest bank HBL before being appointed Finance Minister, also spoke about what he viewed as key to keeping the economy moving in the right direction.

“The government has no business being in business,” he said. “The private sector has to lead the country and step up.”

Pakistan's economy in recent years has faced challenges such as the debt burden, soaring energy costs, youth unemployment and climate vulnerability.

Devastating floods in 2022 put added stress on the country's economy, and this was combined with what some have considered to be a problematic government bureaucracy with disproportionate influence on the private sector.

Inflation has been another stressor, peaking in May at 38 per cent. But it has slowed in recent months, and now sits at 6.9 per cent for September, according to the country's bureau of statistics.

As for continuing reforms, Mr Aurangzeb said 150,000 vacancies the federal government will not be filled as part of Islamabad's commitment to reducing expenditure and improving fiscal discipline.

He said unfunded pensions in the country's most recent budget were also being addressed. Mr Aurangzeb repeated his plan for the country to focus on reform in the three main areas of taxation, energy costs and state-owned enterprises.

“There is no single silver bullet upon which we can fix this thing – it's a combination of all of this,” he said.

Mr Aurangzeb said that while it is important for the country to “stay the course” on economic reform, it is also necessary for Pakistan to change the “DNA” of its economy.

“The DNA so far has been import-led and import-dependent,” he said. “We need to change it to export-led, especially with foreign direct investment focusing on industries that lead us to exportables.”