Pakistan has recorded three consecutive years of primary fiscal surpluses as the government continues efforts to maintain fiscal discipline through lower civil government running costs and reduced debt servicing expenses. The development was highlighted at the High Level International Dialogue on Taxation for Fiscal Sustainability in Pakistan, organised by the Asian Development Bank at the Marriott Hotel in Islamabad. Federal Minister for Finance and Revenue, Senator Muhammad Aurangzeb, delivered the keynote address at the event and outlined the government’s progress on fiscal reforms, taxation, revenue mobilisation and structural changes aimed at strengthening Pakistan’s fiscal position.
Pakistan has also completed a $3 billion dual tranche Eurobond transaction, described as the single largest transaction of its kind in the country’s history. The order book was twice the size of the amount issued, attracting a diversified investor base from Asia, the Middle East, Europe and the United States. The transaction was supported by three credit rating upgrades since April. The bond was issued through 5.5 year and 10 year tranches under a structured three year Medium Term Global Medium Term Note strategy. The strategy is designed to retire expensive short term debt, extend the maturity profile of government borrowing and reduce rollover risks. Future transactions under the strategy are expected to include Sukuks, rupee denominated dollar settled bonds and Panda bonds.
The government has also reported a substantial reduction in Pakistan’s twin structural deficit. According to the figures presented at the dialogue, the deficit has declined from 12.5% of gross domestic product a few years ago to 2.6% by the end of June. The current account is now nearly balanced, while the fiscal deficit has fallen to approximately 2.6%, representing a 22 year low. The sustained improvement in the fiscal position comes alongside efforts to strengthen revenue collection and broaden the country’s tax base. The government is seeking to maintain the gains achieved in recent years while continuing structural reforms across revenue administration and public finances.
The Federal Board of Revenue recorded a 40% increase in revenue collection over the past two years, with total collection reaching Rs13 trillion by the end of last year. At the same time, Pakistan’s tax to gross domestic product ratio improved from 8.8% to 10.3%. The government has set a longer term objective of increasing the ratio into the 13% range to strengthen Pakistan’s fiscal position and improve its standing internationally. Expanding the tax base and addressing distortions caused by tax exemptions remain key areas of focus, with the government working alongside the Asian Development Bank on measures aimed at improving revenue mobilisation.
The transformation of the Federal Board of Revenue is being built around three core areas: people, process and technology. On the integrity side, the Finance Minister stated that neither the Finance Minister nor the Prime Minister has made, or will make, any sifarish, referring to undue political influence in postings, transfers or appointments within the Federal Board of Revenue. This reflects a stated commitment to strengthening institutional integrity. Capacity building is also underway, including the use of third party auditors to improve operational capabilities and training for officers. These measures are being pursued alongside changes to internal processes and the wider operating structure of the revenue authority.
Technology has been identified as a major component of the Federal Board of Revenue’s transformation. Digital Production Monitoring has moved beyond the design stage and into full execution, with the system directly generating additional sales tax revenues. Digital invoicing has also expanded, with registrations now covering approximately 75% to 80% of national sales turnover. PRAL, the Federal Board of Revenue’s information technology arm, has been strengthened in terms of governance and resources to support the new operating model approved by Parliament. Discussions are also underway with Federal Board of Revenue leadership regarding the integration of artificial intelligence and integrated data with international best practices, with possible legislative changes expected to support these developments.
Customs administration is also undergoing structural changes, with faceless assessment implemented to improve transparency and service quality for businesses. Average revenue per declaration has increased to Rs8.5 million from Rs7.6 million, alongside stronger customs enforcement and broader development of the customs ecosystem. The reforms are intended to improve revenue collection while strengthening processes used by businesses and government agencies. The government and Asian Development Bank are also working on measures to broaden Pakistan’s narrow tax base and address distortions created by tax exemptions. According to the government, unlike previous boom and bust cycles, there is now clear ownership at the level of the Prime Minister, Cabinet and political leadership to continue these structural reforms through to completion.
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