Finance Minister Muhammad Aurangzeb said Wednesday that a $10 billion facility currently under discussion with the United States would not function as a loan, but would instead be used to help Pakistan raise long-term debt from global capital markets to replace its existing bilateral loans.
In his first public comments on the request submitted to Washington, Aurangzeb said Pakistan expects a response from the US Treasury by the end of September. “This is not about a credit line or a loan or whatever. This is a signal about our currency stability, a signal about exchange rate stability and that in turn allows us to go to the markets to raise debt,” he said, clarifying the nature of the facility. Pakistan has requested the funding through the US Treasury’s Exchange Stabilisation Fund.
Aurangzeb was speaking to media following the formal launch of a simplified tax scheme for small traders, which offers a 1% income tax on sales in exchange for exemption from audits, the installation of digital sales machines, and exemption from acting as withholding agents.
The minister said the request for the facility remains with the US Treasury, and that the government is also in parallel discussions with the US Export-Import Bank (EXIM) and the Development Finance Corporation (DFC). “We hope to get some reaction from the US by the end of September,” he said, adding that these efforts are all aimed at securing access to market-based loans, acknowledging that some may succeed while others may run into difficulty.
Explaining the rationale behind the facility, Aurangzeb said the government wants to avoid increasing bilateral external debt and will instead try to replace it with market-based debt carrying longer maturities. “We will go towards market-based financing and will rely less on bilateral support,” he said.
Pakistan currently owes $12.3 billion in short-term debt to three bilateral creditors: Saudi Arabia, China, and Kuwait. Saudi Arabia recently rolled over $5 billion until December 2028, while extending a further $3 billion for three months. China rolls over $4 billion annually. These short-term arrangements leave the government with limited political and economic flexibility, requiring the prime minister to personally request rollovers each year, and in some cases quarterly. Aurangzeb thanked Pakistan’s bilateral partners for their support over the past decade.
The finance minister said the government has already appointed three consortiums to float Eurobonds, sukuk, and dollar-settled rupee bonds, and will aim to issue five-, seven-, and ten-year bonds. Pakistan’s credit rating, however, remains too low to secure market loans at competitive rates, despite a recent upgrade to B, which still falls below investment grade. Pakistan raised a $250 million Panda bond in the last fiscal year, backed by guarantees from the Asian Development Bank and the Asian Infrastructure Investment Bank.
Pakistan-US relations have warmed in recent months, and the $10 billion backup facility request is being viewed in the broader context of that improving diplomatic relationship.
Traders Scheme
Separately, Aurangzeb launched the simplified tax scheme for traders, which includes a simplified return form that can be filled out and submitted via mobile device. The scheme was finalised by Minister of State for Finance Bilal Kayani in consultation with the trading community. Under its terms, traders can join by paying just 1% tax on annual sales, or a minimum of Rs25,000 annually, and are offered the option to declare their assets with legal guarantees that they will never be asked to disclose the source of those assets. Eligibility is limited to traders operating a single shop with maximum annual sales of Rs200 million.
FBR Chairman Rashid Langrial said that if the scheme succeeds, millions of currently non-filing traders would be brought into the tax base. Even if it falls short despite accommodating traders’ demands, he added, tens of thousands would still likely join the base.
