With a rising debt burden, the visiting IMF mission has asked Pakistan for fiscal consolidation, curtailing the circular debt in the energy sector and finding alternative ways if it proposes a reduction in the petroleum levy. Meanwhile, the Ministry of Finance released its annual borrowing plan for FY27, indicating that the federal fiscal deficit is projected to hover around Rs7 trillion during the ongoing fiscal year.
Federal Minister for Finance Muhammad Aurangzeb held a virtual meeting with the visiting IMF review mission, led by Ms. Iva Petrova, to accomplish the fourth review under the $7 billion Extended Fund Facility (EFF). The Pakistani side assured the IMF of undertaking structural reforms even after the eruption of the ongoing Gulf war and passing the burden of increased fuel prices on to the masses, while also introducing targeted subsidies for vulnerable segments of society.
The IMF raised concerns over the increasing debt burden, the circular debt in the energy sector and the continuation of structural reforms. The Fund also insisted on the continuation of tariff reforms agreed under the National Tariff Plan for five years. It also raised concerns over the government's inability to pass legislation on the Sovereign Wealth Fund.
Both sides might proceed further to evolve a consensus on a new deadline for the structural benchmark for getting approval from parliament within the ongoing calendar year. Under the borrowing plan, Pakistan's principal maturity of external debt is projected at $15.6 billion, of which the majority, $7 billion, comprises bilateral deposits. "Total External Debt principal maturities amount to $15.6 billion, of which the majority are bilateral deposits of $7 billion.
Importantly, these deposits are expected to be rolled over, and remaining maturities are due to multilateral ($5.3 billion) and commercial lenders ($3.3 billion), with no Eurobond maturities," it was stated in the Annual Borrowing Plan for FY27 prepared by the Finance Division. For the External Debt Financing Plan for FY27, the government remains committed to completing all actions linked to multilateral programme loans scheduled to be disbursed during the year.
It also aims to fulfil all agreed Performance and Policy Actions (PPAs) with development partners. The government intends to undertake a structured approach to capital market issuances, subject to prevailing market conditions and financing requirements. Such capital market issuances will complement multilateral and bilateral financing and support the diversification of the government's external funding base.
A portion of future market issuances will be undertaken as replacement transactions to replace shorter-dated external debt with longer-dated, market-based financing. This approach will facilitate more efficient management of the existing debt portfolio, extend the duration of external debt, reduce refinancing risk and progressively transition towards a more diversified and market-driven funding structure. Foreign commercial bank loans: As per the plan, existing external commercial loans will be refinanced, and new financing options may be explored, subject to the availability of more favourable terms and pricing.
Foreign portfolio investment in government securities, Naya Pakistan Certificate (NPC) and Islamic Naya Pakistan Certificates (INPC): The government will remain active in providing a conducive investment environment for non-residents to invest in government securities, NPC and INPC. The availability of underlying assets is being ensured. Coordinating with sovereign credit rating agencies: To ensure transparency and enhance coordination, the Finance Division will continue to address inquiries from sovereign credit rating agencies on matters related to public debt, fiscal deficit financing, borrowing operations and other relevant areas, in collaboration with relevant government entities.
This approach aims to effectively manage and communicate the government's creditworthiness. The Annual Borrowing Plan (ABP) for FY2027 outlines the government's plan to meet its borrowing needs for the current fiscal year. The plan is aligned with the broader strategic goals outlined in the Medium-Term Debt Management Strategy FY2026-28 (MTDS).
The total federal fiscal deficit is projected at PKR7,020 billion, and after adding domestic and external maturities, total Gross Financing Needs are projected at PKR28,647 billion, approximately 20% of GDP (FY27). For financing the federal fiscal deficit of PKR7,020 billion, net domestic borrowing is projected at PKR6,046 billion. The Domestic Financing Plan will focus on reduced reliance on short-term T-Bills on a net issuance basis, where T-Bill maturities are planned to be replaced by medium- to longer-term tenor instruments.
The government plans to move towards medium- to long-term instruments, with higher net issuances of PKR4,580 billion of Pakistan Investment Bonds (PIBs), with fixed-rate PIBs targeted to exceed 50% of new issuances. Importantly, floating-rate exposure is limited to the 10-year Sukuk VRR only. Government Ijara Sukuk is planned to contribute PKR3,785 billion, supported by the new Hybrid Sukuk and short-term Sukuk (3-6 months) structures.
Net external financing is projected at PKR813 billion, equivalent to $2,804 million. The External Financing Plan will focus on the following key strategies: Inflows from multilateral partners are expected to be the primary external funding source, with a net inflow of $1,580 million. During FY27, the government plans for higher international capital market issuances, aiming for an amount of more than $2 billion of Eurobond/International Sukuk bonds, subject to suitable market conditions.