US-Iran conflict poses risks to Pakistan’s growth, inflation outlook: Aurangzeb

Pakistan’s economic growth and inflation outlook could come under pressure from the ongoing conflict, Finance Minister Muhammad Aurangzeb said on Monday amid escalating geopolitical tensions in the Middle East.

“We are on our way from stabilisation to growth,” said the finance minister, adding that the government expects GDP growth of over 4% in the ongoing fiscal year.

“It’s obviously a function of the ongoing conflict, which has implications for inflation and GDP, but our leadership is at it, so hopefully sooner than later we will get a more permanent solution to the conflict that we see at this point,” said Aurangzeb.

The remarks come amid escalating tensions in the region after US forces struck two Iranian launchers on Iran’s Larak Island on Sunday, a US official said, marking the first known American strikes on Iran since late July.

The war has led to the blockade of the Strait of Hormuz, which before the conflict was used to transit about a fifth of the world’s oil supply.

Addressing the “Partnerships That Power Progress” event organised by EXIM Bank in Islamabad, the finance minister noted that the current challenge is not growth but achieving sustainability.

“That sustainability, what we have been saying all along, is going to be export-led and private sector-led,” he said.

The finance minister, citing recent budgetary measures, said that the government is focused on utilising the available fiscal space around this export-led growth.

“In the last budget, we have provided a very clear direction of travel in terms of how we wish to support the export-led growth, reducing the super tax, doing away with the advance tax,” he said.

Aurangzeb said that despite a policy rate of 11.5%, financing is being made available to exporters at 4.5%.

“So that entire discussion, whether we have competitive financing across the region, I think that is now history, because irrespective of where the policy rate is, the financing is now being made available at 4.5%.

“Now that is where the role of Pakistan Exim Bank comes in, as a critical enabler in channelling export refinance and the LTFF, which has been enabled through this budget,” Aurangzeb said.

The country now needs to diversify its export base, in terms of products and services, and also with respect to the segments, he said.