Finance Minister Muhammad Aurangzeb said on Saturday that Pakistan has so far absorbed the shock from soaring energy prices linked to the Iran war. He also said that attacks on infrastructure in Saudi Arabia and other Gulf countries were “worrying” for the country’s longer-term economic outlook.
Speaking in an interview on the sidelines of the IMF-World Bank Annual Meetings in Bangkok, Aurangzeb said Pakistan had secured enough energy supplies to last through November. The government is now planning for the winter months, when household demand typically rises.
Gulf energy attacks raise concern over Pakistan’s outlook
Aurangzeb said the initial impact of the crisis had been managed well. “The first-order impact has been negotiated well by Pakistan,” he said. He added that the country had not faced any shortage, fuel queues at petrol stations or serious law and order problems, which he said had occurred elsewhere.
He said the government would not buy spot cargoes of liquefied natural gas unless there was “an absolute dire need”. Such cargoes generally cost far more than shipments bought under earlier contracts.
The energy shock followed the start of the war in February, when the United States and its ally Israel attacked Iran. Tehran has since retaliated against Washington’s partners in the Gulf, disrupting oil and gas supplies and pushing global prices higher. Yemen’s civil war has also reignited, and the Houthis have repeatedly attacked Saudi infrastructure in recent days, including energy facilities and airports.
Aurangzeb voiced alarm at this escalation. He said damage to such sites would delay the return to economic normality. “What is now (the) worrying part of it is when the energy infrastructure starts getting hit,” he said. He added that he was unsure how far the situation would go, but warned that continued strikes on infrastructure would slow recovery even if the fighting eased.
IMF programme, tax collection and military-run businesses
Pakistan has been a frequent borrower from the International Monetary Fund, which acts as a lender of last resort for countries close to default. The country is currently in its 25th programme with the fund since gaining independence in 1947, and at least 11 of those programmes have been outright bailouts.
The current programme totals around $7 billion over three years. This month, the IMF agreed to release a $1.2 billion tranche. With global debt levels high, the fund has urged all economies, including those most exposed to the Iran war shock, to pursue fiscal consolidation at this year’s annual meetings to avoid a possible crisis.
Aurangzeb said Pakistan had been on that path for some time. “Fortunately for us, we have been on this fiscal consolidation path for a while,” he said, smiling ruefully. He said tax revenues had grown significantly in recent years. He added that the government was now targeting businesses that collected sales tax from consumers but never deposited it in state accounts, a practice he described as theft. He said such losses amounted to billions of dollars and that there was still “room for improvement” in income tax collection.
Aurangzeb said the government’s reform agenda had met resistance from industry, lobbying groups and vested interests. “Every reform, everything that you try to do when you try to change the status quo, there is pushback,” he said.
Privatising state-owned assets is a major pillar of the IMF programme criteria. Pakistan’s military runs a large group of businesses across sectors ranging from real estate to fertiliser. Asked about these companies, Aurangzeb denied that they receive state funding. He said they operate on a standalone basis and are profitable on their own. “So, I can confirm to you, we are not providing any funds from the exchequer,” he said.
