Iran peace deal brightens economic outlook

June 16, 2026 (MLN): Improved economic projections for FY2027 are on the horizon following the conclusion of the Iran war, though any formal revision to the budget remains premature, Finance Minister Muhammad Aurangzeb said on Monday hours after the US and Iran signed a deal to end the fighting.

Damaged energy infrastructure will delay a normalisation of supply chains, Aurangzeb noted, adding that the conflict had already pushed inflation back into double digits, according to Reuters,

"We were looking at how we manage the second, third-order impact in case this conflict continues. The energy infrastructure has been hit. And therefore, it will take time before we return to normalcy in terms of supply chains," he said.

While acknowledging upsides to next year's projections, he described a budget revision as "way too premature" at this point. Pakistan's FY27 budget, tabled in parliament on Friday, targets GDP growth of 4% and inflation of 8.2%.

Defense spending has been raised 18% to Rs3tr ($10.8bn), with higher tax revenue earmarked to keep the $7bn IMF programme on track.

Islamabad is considering deploying commercial borrowing in FY27 to reshape its creditor profile without expanding the overall external debt stock. "Ideally what we want to do is to see if we can replace some of the bilateral through commercial. We do not intend to increase the size of our external debt," Aurangzeb said.

Pakistan repaid $3.4bn in bilateral UAE deposits last month while simultaneously accessing UAE commercial banks for fresh financing — a move that reflects the creditor-profile shift Aurangzeb is looking to formalize.

Further Panda Bond, Eurobond, US dollar, and rupee-linked dollar-settled issuances are in the pipeline, though volumes are yet to be finalized. The FY27 budget envisages $2.82bn in commercial and Eurobond financing.

Pakistan holds approval for up to $1bn equivalent in Panda bonds, following a $250m debut that was 95% backed by the ADB and AIIB.

A former banker, Aurangzeb has now presented three consecutive budgets a rare achievement in Pakistan, where governments frequently fail to complete their terms and finance ministers are often replaced mid-tenure.

Significant interest has emerged in Pakistan's defence industry in the wake of last year's conflict with India, with the country's jets, drones and missiles having earned a combat-tested reputation and attracting a wave of prospective buyers.

However, Aurangzeb said it was too early to quantify any defence-export upside. The government's immediate focus remains on defence allocations, given what he described as two active borders with Afghanistan and India.

Pakistan has moved to formalise its digital asset sector this year, signing agreements with Binance and World Liberty Financial as early steps.

Aurangzeb said regulation and licensing of crypto, tokenisation and digital-asset exchanges would precede any taxation of the sector. "Yes, at some point we have to bring it into the taxation timeframe. But this was not the time to do it," he said.

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