Pakistan is on track to secure a new loan from the International Monetary Fund and macroeconomic factors are shifting in its favour as it works to boost its lagging economy, Finance Minister Muhammad Aurangzeb has said.
He also sounded optimistic that Pakistan's currency has finally stabilised and said rampant inflation is on track to drop to single-digit levels by the end of next year.
Mr Aurangzeb, a former banker, was in Washington last week for the IMF and World Bank Spring Meetings, shortly before the term expires on Pakistan's $3 billion bailout, which came last year as Islamabad risked defaulting on its debts.
“The fund has been very receptive in terms of agreeing to consider a larger, longer programme,” Mr Aurangzeb told The National in an interview at the Pakistan embassy.
Pakistan is reportedly seeking a $6 billion IMF loan, but Mr Aurangzeb said that figure was more of a “guesstimate”, with the loan's final details to be determined when an IMF mission visits Islamabad next month.
Mr Aurangzeb, who assumed his position last month after Prime Minister Shebaz Sharif's election, said the situation in the Middle East was a frequent point of concern at the Spring Meetings. They took place the same week as Iran fired a barrage of drones and missiles at Israel, which then responded with a strike inside Iran.
“Everyone is hoping it will remain contained,” Mr Aurangzeb said.
Nearly two thirds of Pakistan's population of about 230 million people are less than 30 years old, but the country's economy has historically underperformed because of a lethargic bureaucracy, widespread corruption and decades of volatile security that have all made investment in Pakistan a challenging undertaking.
Further complicating Pakistan's outlook is its vulnerability to the effects of climate change, illustrated by the 2022 floods that caused about $30 billion of damage.
Mr Aurangzeb said Pakistan would need at least three years of support to carry out a reform agenda across several sectors including taxation and energy.
Foreign workers sending money home
About one million Pakistanis live in the UAE, and Mr Aurangzeb spoke of the importance of remittances to Pakistan's economy.
The World Bank in December predicted a drop of about 10 per cent in remittances this year, but Mr Aurangzeb said payments from overseas are increasing, and are expected to rise to about $29 billion this fiscal year.
The inflow of foreign money will help Pakistan to stabilise its rupee, which lost more than 40 per cent of its value against the dollar since the start of the coronavirus pandemic.
Mr Aurangzeb said the rupee is now stable and should only depreciate by between 6 pre cent and 8 per cent a year going forward.
Meanwhile, inflation is down from a peak of about 38 per cent to about 21 per cent and should drop to below 10 per cent by the end of 2025, he added.
Pakistan's economy has long lagged other Asian countries including its next-door rival India, where the per capita GDP is nearly 50 per cent higher.
Still, Mr Aurangzeb pointed to several bright spots in the Pakistani economy, including its burgeoning tech sector.
The sector has grown from “literally nowhere” a few years ago to about $3.4 billion today, the Finance Minister said.
“There's no reason why it can't go to $4.5 billion or $5 billion in the next year,” he added.
Agricultural production is also up and the sector has recovered from the catastrophic floods of 2022 that hit farms in Sindh and Punjab.
But large-scale manufacturing remains sluggish, Mr Aurangzeb noted, pointing to energy costs and high interest rates.
Islamabad is hoping to boost investment from overseas through the creation of a Special Investment Facilitation Council established to streamline processes.
Pakistan last week hosted Minister of Foreign Affairs Prince Faisal bin Farhan as it looks to increase Saudi investment under the programme.
On China, which has invested heavily in Pakistan through the China–Pakistan Economic Corridor (CPEC), Mr Aurangzeb said Pakistan had “missed a trick” by taking too long to monetise projects including through boosting exports t special economic zones.
“We have been slow over the last few years,” he said. “We are going to move forward with Phase Two so that we can get going with the revenue generating part of the of CPEC.”
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