Aurangzeb sees stronger growth, lower inflation in FY27 amid easing global tensions

Finance Minister Muhammad Aurangzeb said there was significant upside potential for Pakistan’s economic growth, inflation, foreign exchange reserves and interest rates in FY2026-27, provided the country does not have to contend with the second- and third-order effects of the conflict in the Middle East.

“For the next year, we have the GDP growth number at 4% and inflation at 8.2%. I see upside in both numbers if we don’t have to deal with second- and third-order impacts [of the ongoing conflict],” he told Bloomberg News on Monday.

Pakistan on Friday unveiled an Rs18.77 trillion federal budget for the fiscal year 2026-27, with the economy expected to grow 4% in 2026-27, and average inflation is expected to be recorded at 8.2%.

In his interview with Bloomberg News, the finance minister noted that Pakistan lowered its growth estimate for the outgoing fiscal year to 3.7% from above 4%, primarily due to the direct impact of regional tensions over the past three months.

He said the country had successfully managed the immediate economic consequences of the conflict, but cautioned that recovery to normal conditions would take time as energy infrastructure damaged during the crisis would require weeks and months to fully recover.

 “It will take a few months to get back to normalcy,” he said.

The finance minister said the government’s economic strategy was now focused on transitioning from macroeconomic stabilisation to sustainable, export-led growth, following progress made under the International Monetary Fund’s Extended Fund Facility (EFF).

He stressed that long-term economic stability would depend on accelerating exports and addressing Pakistan’s chronic balance-of-payments challenges.

“Ultimately, we have to move towards export-led growth because that is what will resolve our balance-of-payments issue and reduce our reliance on the lender of last resort,” he said.

Aurangzeb also defended the government’s tax revenue target for FY27, which was raised to Rs15.26 trillion, describing it as ambitious but achievable based on improvements in tax collection recorded over the past two years.

The finance minister’s comments came as the United States and Iran reached a deal to end their war and will hold an official signing ceremony on Friday in Switzerland, Pakistani Prime Minister Shehbaz Sharif said on social media early on Monday.

The agreement was struck despite an Israeli strike on Lebanon on Sunday that drew criticism from both Iran and US President Donald Trump.

The precise terms of the deal were not immediately known. Shehbaz said the pact called for “the immediate and permanent termination of military operations on all fronts, including in Lebanon”.