The 2025-26 Federal Budget of Pakistan

The 2025-26 Federal Budget of Pakistan, presented on June 10, 2025, by Finance Minister Muhammad Aurangzeb, has a total outlay of approximately Rs. 17.6 trillion, a reduction from the previous fiscal year's Rs. 18.9 trillion. Below is a concise overview based on available information:

Key Highlights of Pakistan’s 2025-26 Budget:

• Total Outlay: Rs. 17.6 trillion, down by about 7% from FY 2024-25, reflecting a focus on fiscal consolidation.
• Economic Targets:
  • GDP growth target: 3.6% (up from an estimated 2.68% in FY 2024-25).
  • Inflation target: 6.29% (up from 4.63% in FY 2024-25).
  • Current account deficit: Projected at $1.5 billion, compared to a $1.6 billion surplus in FY 2024-25.
  • Fiscal deficit: Estimated at Rs. 6.5 trillion (5.1% of GDP).
• Revenue Targets:
  • Tax Revenue: Ambitious target of Rs. 14.2 trillion set for the Federal Board of Revenue (FBR), a significant increase to broaden the tax base.
  • Non-Tax Revenue: Projected at Rs. 3.9 trillion, lower due to reduced State Bank of Pakistan profits.
  • New tax measures worth Rs. 869 billion, including income tax on retailers/wholesalers, 3% GST on petroleum products, and removal of exemptions for FATA/PATA regions.
• Expenditure:
  • Debt Servicing: Markup payments reduced to Rs. 8.5 trillion from Rs. 9.8 trillion in FY 2024-25, due to lower borrowing costs following a policy rate cut to 11%.
  • Defense Spending: Increased by 20% to Rs. 2.55 trillion ($9 billion), driven by heightened tensions with India after recent conflicts.
  • Public Sector Development Programme (PSDP): Allocated Rs. 1.1 trillion, down from Rs. 1.4 trillion in FY 2024-25, indicating cuts in development spending.
  • Petroleum Development Levy (PDL): Targeted at Rs. 1.4 trillion.
• Sectoral Allocations:
  • Health: Allocation remains low at 0.9% of GDP (Rs. 924.9 billion in FY 2024-25), with calls for increased funding.
  • Education: Less than 1% of GDP, with a 13% decline in university enrollment noted.
  • Higher Education Commission (HEC): Allocated Rs. 61.1 billion in FY 2024-25, with expectations of modest increases.
  • Housing: Affordable loan package proposed for 3-5 marla housing units.
• Taxation Reforms:
  • Introduction of the Digital Presence Proceeds Levy Act, 2025, taxing foreign vendors.
  • Abolition of 4% further sales tax to bring unregistered dealers, wholesalers, and retailers into the tax net.
  • 18% GST proposed on retailers, agricultural implements, seeds, fertilizers, and tractors, impacting middle and high-income groups.
• IMF Influence:
  • The budget aligns with IMF conditions for a potential $6-8 billion loan, emphasizing a primary surplus and a budget deficit of 5-6% of GDP.
  • Contractionary measures aim to close the revenue-expenditure gap to secure the bailout.

Economic Context:

• GDP Growth: Pakistan’s GDP grew by 2.4% in Q3 FY 2024-25, reaching $410.96 billion with a per capita GDP of $1,824.
• Public Debt: Stood at Rs. 67.8 trillion (74.1% of GDP) by March 2025, down from 76.4% the previous year. Domestic debt: Rs. 41.4 trillion; external debt: Rs. 26.4 trillion.
• Capital Market: Pakistan Stock Exchange market capitalization surged 50% to Rs. 10.2 trillion, with the KSE-100 index gaining 78,000 points in FY 2025.
• Challenges: Agriculture and manufacturing sectors face issues, with mixed industrial growth (4.77% overall, but large-scale manufacturing contracted).

Critical Analysis:

• Strengths: The budget prioritizes fiscal discipline, tax base expansion, and IMF compliance, potentially stabilizing the economy and attracting external financing. Reduced debt servicing costs and a focus on sustainable growth (2.7% in FY 2024-25) aim to avoid boom-bust cycles.
• Weaknesses: Heavy reliance on indirect taxes and new levies may burden the middle class and salaried workers, exacerbating inequality. Low health and education spending (under 1% of GDP) limits human development. Cuts in development spending could hinder long-term growth.
• IMF Dependency: While the budget strengthens Pakistan’s case for an IMF bailout, critics argue it lacks bold structural reforms to address systemic issues like tax evasion, narrow tax base, and inefficient public sector enterprises.

Additional Notes:

• The budget reflects a 7% reduction in overall spending, partly due to defense-driven priorities amid tensions with India.
• Provincial budgets, such as Khyber Pakhtunkhwa’s, are also being finalized, with Sindh announcing relief measures for salaried workers.
• Experts urge aligning the budget with long-term plans like URAAN Pakistan for sustainable growth, emphasizing structural reforms, water management, and export growth.

For further details, including the Finance Bill 2025-26 or specific allocations, visit the Ministry of Finance’s official website: www.finance.gov.pk. For pricing or subscription-related queries about xAI products, check https://x.ai/grok or https://help.x.com/en/using-x/x-premium.