Pakistan must move beyond economic stabilization and adopt a sustainable, export-led growth model to avoid repeating the boom-and-bust cycles associated with consumption-driven expansion, Finance Minister Muhammad Aurangzeb said at the Pakistan Tax Conference. He highlighted improvements in fiscal performance, tax collection and foreign exchange reserves, while stressing that the next phase of economic policy must focus on strengthening exports, broadening the tax base and creating a predictable environment for private sector investment. According to the finance minister, the country has made progress in reducing economic imbalances, but maintaining stability will require continued structural reforms and a shift towards growth supported by productive economic activity.
Aurangzeb said Pakistan’s twin deficit had declined to 2.6% of gross domestic product (GDP) by the end of the previous fiscal year, compared with a cumulative 12.5% when the country began its macroeconomic stabilization efforts. He attributed much of the improvement to fiscal consolidation and reported that the fiscal deficit had reached its lowest level in 22 years. Pakistan had also recorded three consecutive years of primary surpluses, reflecting efforts to improve the balance between government revenues and expenditure before interest payments. These developments indicate progress in managing fiscal pressures, although sustaining the improvements will depend on continued revenue generation, expenditure management and broader economic reforms.
Tax collection has been a central part of the government’s strategy. The finance minister said the Federal Board of Revenue’s (FBR) tax-to-GDP ratio increased from 8.8% to 10.3%, while revenues grew by 40% over the last two fiscal years. He explained that the 1.5 percentage-point increase in the tax-to-GDP ratio over approximately two and a half years resulted from two main factors. Enforcement measures accounted for 0.9 percentage points, while new policy measures contributed 0.6 percentage points. Enforcement efforts, he said, helped address revenue leakages, theft and corruption. Going forward, the government intends to place greater emphasis on enforcement while continuing to broaden the tax base so that revenue collection does not depend excessively on existing taxpayers.
The finance minister also highlighted the FBR Transformation Program, which covers improvements in people, processes and technology. According to Aurangzeb, the programme is being led by the prime minister and is subject to weekly progress reviews. He described taxation as one component of a wider structural reform agenda that includes the energy sector, state-owned enterprises, privatization, public finance, pension arrangements and tariff reforms. These areas are interconnected because weaknesses in government finances, energy payments and public sector operations can create additional fiscal pressures. Improving tax administration alongside these reforms is intended to strengthen the government’s financial position and create a more stable environment for economic activity.
Turning to economic growth, Aurangzeb said Pakistan’s economy had contracted by 0.3% a few years earlier but had since recovered to growth of around 3.7%. He noted that the difference between a growth rate of 3.7% and 3.65% was not the central issue. Instead, the priority was to ensure that growth remained sustainable and generated stronger economic activity over time. He cautioned against returning to a model in which liquidity-driven and consumption-led expansion produces temporary increases in demand followed by renewed economic instability. In his view, export-led growth offers a more sustainable direction by supporting foreign exchange earnings, productive investment and the ability of domestic businesses to compete in international markets.
Pakistan’s external position was another important part of the minister’s assessment. Aurangzeb said foreign exchange reserves had previously fallen to the equivalent of around two weeks of import cover but had subsequently recovered to more than three months. He described the improvement as a significant development and stressed that the quality of reserves was as important as their overall size. According to his remarks, the reserves had not been built through additional debt, with State Bank of Pakistan interventions contributing to their accumulation. A stronger reserve position can help improve the country’s capacity to meet external payment obligations and manage pressures on the balance of payments, although the durability of that position also depends on export receipts, external financing requirements and other foreign currency flows.
The finance minister contrasted Pakistan’s external debt trajectory in recent years with the period between 2015 and 2022. He said external liabilities increased from $55 billion to more than $100 billion during that period, representing additional borrowing of approximately $6 billion to $7 billion annually. Over the subsequent four years, he said, external debt had increased by around $4 billion, or less than $1 billion annually. The comparison formed part of his argument that economic management should focus not only on headline indicators but also on the sustainability of the underlying financing structure. Lower dependence on additional external borrowing, combined with stronger reserves and export earnings, would be important to maintaining stability as the economy expands.
Aurangzeb further emphasized that tax policy should be designed around economic value rather than focusing exclusively on meeting revenue calculations. While acknowledging that fiscal targets must remain achievable, he said taxation should support productive activity and encourage investment in export-oriented industries. He referred to adjustments introduced in the previous budget as an effort to recalibrate taxation around exports and export-led sectors. He also identified broadening the tax base and simplifying the tax code as continuing priorities. For businesses making long-term investment decisions, he argued, policy predictability and continuity are essential. Frequent and unexpected changes in taxation can complicate investment planning and weaken confidence among private sector participants.
The minister identified four key enablers for advancing the reform agenda: political consensus, stronger institutions, taxpayer trust and clear communication. Political consensus includes effective coordination between the federal and provincial governments, particularly where responsibilities and revenue arrangements overlap. Stronger institutions are necessary to implement reforms consistently, while taxpayer trust requires improvements in the credibility of the tax authority and the way it interacts with businesses and individuals. Clear communication, meanwhile, can help explain the purpose and expected impact of structural changes. Aurangzeb described restoring confidence in the tax authority as particularly important for improving compliance and encouraging broader participation in the formal economy.
Pakistan’s economic policy is therefore entering a phase in which maintaining stability must be accompanied by efforts to expand productive capacity and exports. The improvements cited by the finance minister in fiscal balances, tax collection and foreign exchange reserves provide the context for this transition, but sustaining progress will require implementation across several policy areas. Greater tax compliance, simpler regulations, predictable fiscal policies and stronger institutions will be important in supporting private investment. By prioritizing sustainable, export-led growth over consumption-driven expansion, the government aims to reduce recurring economic imbalances and establish a stronger foundation for long-term development.
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