Damaged energy infrastructure meant supply chains would take time to return to normal, after the conflict pushed inflation back into double digits, Aurangzeb said.

“We were looking at how we manage the second, third-order ​impact in case this conflict continues,” he said.

“The energy infrastructure has been hit. And therefore, it will take time ​before we return to normalcy in terms of supply chains.”

He added, “I do see upsides in what ⁠we have projected for next year,” but cautioned it would be “way too premature” to revise the budget.

Pakistan’s FY27 budget, presented in parliament ​on Friday, targets growth of 4% and inflation of 8.2%.

It raised defence spending 18% to Rs3 trillion ($10.8 billion), while relying ​on higher tax revenue to keep a $7-billion IMF programme on track.

Creditor profile

Islamabad may use commercial borrowing in fiscal year 2027 to change its creditor profile without increasing overall external debt, Aurangzeb added in comments on Monday.

“Ideally, what we want to do is to see if ​we can replace some of the bilateral through commercial,” he said.

“We do not intend to increase the size of our external ​debt.”

Pakistan repaid $3.4 billion in bilateral UAE deposits last month but has also tapped the emirates’ commercial banks for financing, reflecting the creditor-profile shift Aurangzeb ‌wants to ⁠formalise.

It plans further Panda Bond, Eurobond, US dollar and first rupee-linked, dollar-settled issues, though the sizes have yet to be decided, he said.

The FY27 budget envisages $2.82 billion in commercial and eurobond financing, while Pakistan has approval for $1 billion equivalent in Panda bonds after a $250 million debut that was 95% backed by the ADB and AIIB.

Three budgets

A former banker, Aurangzeb has presented three ​consecutive budgets, achieving a rare ​run in Pakistan, where governments ⁠often fail to complete their terms and finance ministers are frequently replaced.

Interest has surged in Pakistan’s burgeoning defence industry after last year’s conflict with India, but Aurangzeb said it was too early to ​project any defence-export upside.

The government’s immediate focus is on allocations, given two “active” borders, he added, referring to Afghanistan and India.

Pakistan’s defence manufacturing industry has been running red-hot since its jets, drones, and missiles earned the coveted ‘combat tested’ tag in the India conflict, drawing a slew of buyers.

Pakistan has moved to formalise the digital asset sector this year, for example, by signing ⁠pacts with Binance ​and World Liberty Financial.

Aurangzeb said Pakistan would regulate crypto, tokenisation and digital-asset exchanges ​before taxing the sector, saying revenue gains would follow once it was formalised.

“Yes, at some point we have to bring it into the taxation timeframe,” he added. “But ​this was not the time to do it.”