Aurangzeb Reaffirms Reform Agenda at SECP Workshop
Finance Minister Muhammad Aurangzeb on Tuesday reaffirmed the government’s unwavering resolve to implement deep structural reforms to lay the groundwork for sustainable economic growth and fiscal stability in Pakistan.
Speaking at the National Workshop on Transitioning to Defined Contribution Pension Schemes, hosted by the Securities and Exchange Commission of Pakistan (SECP), the minister emphasized the government’s strategic focus on reforming taxation, energy pricing, and state-owned enterprises (SOEs) — three long-standing pressure points in Pakistan’s economic architecture.
Pension Reform: From Burden to Sustainability
Aurangzeb called pension reform one of the most critical pillars of fiscal discipline. He revealed that since July 1, 2024, all new federal and civil service hires have been shifted to a defined contribution (DC) pension scheme, departing from the legacy defined benefit (DB) model.
“This is not just a fiscal correction — it’s about giving people ownership of their retirement. It’s the right first step before we even begin to tackle the mountain of unfunded liabilities,” said Aurangzeb.
The urgency is clear. In FY25, the government’s pension bill crossed Rs1 trillion, posing a major drain on public finances. The DC model, where employees and employers contribute to individual retirement accounts, offers more predictability, cost control, and long-term sustainability compared to the open-ended liabilities of DB pensions.
Taxation and Tariff Reform: Boosting Competitiveness
The minister also highlighted reform in the tariff structure as a cornerstone of the FY25 agenda. He noted that Pakistan’s decades-long reliance on protective tariffs has stunted industrial growth and discouraged global competitiveness.
“We are gradually dismantling the wall of protection that insulated inefficiency and hindered innovation,” said Aurangzeb.
By rationalizing tariffs and aligning them with global trade norms, the government aims to:
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Lower input costs for manufacturers
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Encourage value-added exports
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Attract investment in competitive industries
Energy and SOEs: Structural Shifts Underway
Aurangzeb acknowledged the energy sector’s distortionary pricing, unsustainable subsidies, and circular debt as major obstacles to fiscal reform. Ongoing efforts to rationalize electricity tariffs, reduce transmission losses, and implement cost-reflective pricing are expected to reduce fiscal bleeding.
Similarly, the government is pursuing SOE reforms through:
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Improved corporate governance
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Partial privatization of non-performing entities
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A shift toward performance-based management in public sector enterprises
Budget FY26: A Balanced and Progressive Approach
The FY26 budget, tabled earlier this month, reflects a progressive yet cautious fiscal strategy:
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7% pension increase to keep pace with inflation, providing relief to retirees
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A proposed 5% tax on annual pension income exceeding Rs10 million, signaling fair burden-sharing from high-income retirees
“We’re striking a balance — protecting retirees from inflation, while ensuring equity in tax collection,” Aurangzeb explained.
This move, if passed by parliament, will not only generate additional revenue but also improve tax progressivity, an area long criticized for enabling elite capture.
Why These Reforms Matter Now
The reforms come at a time when Pakistan’s fiscal pressures are mounting:
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Debt servicing is consuming over half of federal revenues
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The IMF program negotiations hinge on credible, irreversible reforms
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A fragile external account and elevated inflation are limiting room for policy errors
Shifting to defined contribution pensions, rationalizing tariffs, and restructuring SOEs are seen as non-negotiables for unlocking external financing, boosting investor confidence, and restoring macroeconomic stability.
Conclusion: The Road Ahead Requires Consistency
Finance Minister Muhammad Aurangzeb’s statements reflect a rare, focused commitment to long-delayed structural reforms. But translating these policy shifts into lasting economic transformation will require:
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Political consensus to sustain reform momentum beyond the annual budget cycle
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Institutional capacity to execute and monitor reforms at the bureaucratic level
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Public support for a difficult but necessary economic transition
The move to defined contribution pensions could become a model for provincial governments, many of whom face even greater pension-related fiscal risks. If sustained, these reforms could lay the foundation for a leaner, more responsive public sector, and a competitive, export-led economy.
