Aurangzeb says pension reforms on the cards as govt intends to curtail expenditure

Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb said the government intends to introduce pension reforms, part of its strategy to implement structural changes, ahead of inking a new deal with the International Monetary Fund (IMF).

Addressing media persons on Tuesday, the finance minister, sitting alongside Federal Law Minister Azam Tarar and Information Minister Atta Tarar, said steps must be taken to bring pension expenses under control.

Aurangzeb indicated that the retirement age should also be extended.

“Age is now just a number. 60 is the new 40,” he said.

“The institution I left before coming here, we took the first step that we raised the retirement age from 60 to 65 because those are your productive years and you can use its result by extending the term,” said Aurangzeb, who previously served as CEO of Habib Bank Limited (HBL).

“Moreover, we will need to change the service structure so that the pension expenditure comes under control,” he said.

In its fiscal year 2023-24, Pakistan allocated Rs801 billion for superannuation allowances and pensions, up 31% from the Rs609 billion budgeted for the previous fiscal year.

Meanwhile, Federal Law Minister Azam Nazir Tarar said pension reforms will be held across the board for which legislation is required.

“A large chunk of yearly revenue is utilised on paying retirement benefits and pensions,” Tarar said.

“Legislation is required for this as civil servants, armed forces, judicial organs, and executive organs are included,” he said.

The law minister informed that a committee has been formed under the chairmanship of the finance minister to propose recommendations pertaining to pension reforms.

“The recommendations, when finalised, will be shared with the public,” he said.

Meanwhile, talking about the Saudi delegation’s recent visit to Pakistan, Aurangzeb said the visit was a great “confidence booster”.

The discussion with the Saudi delegation was positive, he said.

“The country is moving in the right direction,” Aurangzeb reiterated.

“The IMF mission will arrive in Pakistan this month, where crucial talks on structural reforms will be held.

“Under the reforms, we want to increase our tax-to-GDP ratio from the currently unsustainable 9% to 13-14%. Introduce reforms in the energy sector and the privatize the State-Owned Enterprises (SOEs).

“Moreover, the government needs to reduce its non-development expenditure,” said Aurangzeb, terming the Sindh government’s Public-Private-Partnership model a good option, which should be implemented by the federal government.

The government intends to improve the country’s economy with the support of the private sector, he said.

IMF and Pakistan

Aurangzeb said the IMF mission would arrive in Pakistan in the next seven to 10 days for the purpose of discussing the contours, including duration and size, of the upcoming programme, which will be shared in due course.

“Our priority is to get the Extended Fund Facility (EFF) into place. Meanwhile, talks regarding climate finance will be also held, but these talks will be conducted sequentially,” he said.

The finance minister reiterated that all IMF recommendations benefit the country. “Thus, I term it a Pakistan programme, which is supported, assisted and funded by the IMF,” he said.

Policy rate to come down

Talking about the policy rate, the former banker said that interest rate is the purview of the State Bank of Pakistan (SBP).

“However, as the inflation goes down, we will see a rate cut soon,” he said.

He said the SBP in its latest Monetary Policy Statement said inflation in September 2025 will be between 5-7%.

“I am sure that the rate might see cut in June, July, August,” he said.