Pakistan Budget for FY 2026-27

[ghazi52]

Challenges for the next budget​

Mohiuddin Aazim
April 27, 2026



Finance Minister Muhammad Aurangzeb presenting the budget for FY26 during a noisy session of the National Assembly on Tuesday, June 10, 2025. — National Assembly/ X

Pakistan approaches its next federal budget not with optimism, but under the weight of numbers that have grown more unforgiving since the original assessment.

Between July 2025 and February 2026 alone, the federal government’s debt rose by a staggering Rs1.99 trillion to Rs79.9tr, including external debt equivalent of Rs23.2tr, according to the State Bank of Pakistan.

The International Monetary Fund (IMF), in its April 2026 Fiscal Monitor, estimated gross government debt at 70.1pc of GDP for the current fiscal year. More alarming still, debt servicing continues to devour an estimated 50pc or more of total revenues. During the first half of the year, interest payments on public debt reached Rs3.56tr — more than double the combined allocations for defence and the Public Sector Development Programme. This is no longer just a budgetary imbalance; it is structural captivity, where the past dictates the future.

This reality is further complicated by binding commitments under the IMF’s $7 billion programme, where disbursements are now tied to time-bound structural reforms. The fiscal framework is no longer purely domestic — it is externally anchored, with policy direction increasingly shaped by compliance milestones rather than discretionary priorities.

Any attempt to introduce new taxes or reduce subsidies will face stiff opposition, yet failure to do so risks losing IMF support

The fiscal deficit, while projected to improve, remains a high-wire act. The IMF projects Pakistan’s fiscal deficit at 3.2pc of GDP during the current fiscal year and next — down from 5.4pc in FY25. Yet the Fund’s own medium-term outlook is deeply troubling: it forecasts the deficit rising again to 3.6pc of GDP in FY30 and further to 4.6pc in FY31. T

 

[ghazi52]

The primary surplus, a key IMF metric, has remained strong equivalent to 3.2pc of GDP in the first half of FY26. But the IMF expects this surplus to decline to 2pc of GDP next year and then drop sharply to just 1pc by FY30 and a negligible 0.1pc by FY31. This is not sustainable consolidation; it is borrowed time.

On the growth front, the ongoing Middle East conflict, which erupted in late February, has dealt a severe blow to recovery prospects, threatening to slow growth in the next fiscal year through higher energy and fertiliser costs, weakening agricultural and industrial output, reducing remittances, and widening the current account deficit.

Inflation, which had cooled significantly, is now poised to rise again. The Asian Development Bank projects average inflation at 6.4pc in FY26 and 6.5pc in FY27, driven by surging global oil prices and disrupted trade routes.

The IMF’s projections are even more alarming: 7.2pc for the current year, rising to 8.4pc in 2027. The Consumer Price Index had already risen to 7.3pc in March 2026.

This resurgence will erode purchasing power and complicate the central bank’s monetary policy stance — particularly as energy pricing reforms under the IMF framework continue to pass through to consumers.

Defence spending, shaped by an increasingly volatile geopolitical environment, continues to rise. The government allocated Rs2.55tr for defence in the FY26 budget, a nearly 20pc increase from the previous year, equivalent to approximately 2pc of GDP.

This does not include pensions for retired military personnel. Every additional rupee allocated to defence must be matched by greater efficiency elsewhere, or the imbalance will deepen.

 

[ghazi52]

Energy reform remains at the centre of Pakistan’s fiscal future, but progress has been painfully slow. The power sector’s circular debt currently stands at approximately Rs1.9tr, with the government aiming to reduce it to Rs1.61tr by June 30.

However, a refinancing plan has been shelved after failing to secure concessional financing from international lenders and Saudi Arabia.

The gas sector is in even worse shape, with circular debt jumping to over Rs3.4tr. Without resolving circular debt, improving distribution efficiency, and investing in sustainable energy, the budget will remain a temporary arrangement — not a lasting solution.

The IMF’s Extended Fund Facility remains the central anchor of Pakistan’s economic policy, but the relationship is increasingly strained. The Fund is pushing for an ambitious tax target of Rs15.6tr for FY26–27, tied to a tax-to-GDP ratio of 11.3pc.

However, Pakistani officials maintain that 10.7pc is a more realistic benchmark. The FBR’s tax-to-GDP ratio currently stands around 10.6pc, significantly below the estimated potential of 15pc.

 

[ghazi52]

Trade policy is shifting, with commitments to phase out non-tariff barriers on imports — risking increased import volumes and renewed pressure on foreign exchange reserves unless matched by stronger export performance.

The government is caught between the IMF’s stringent demands and the domestic imperative to provide relief to a population already strained by inflation and unemployment. Recent shocks have deepened this challenge.

An assessment by the International Labour Organisation estimates that the 2025 floods affected around 3.3 million jobs, particularly in agriculture, livestock, and informal sectors.

Expanding social protection through programmes like the Benazir Income Support Programme has become not just a welfare measure but an economic necessity.

The government’s room for manoeuvre is extremely limited. Any attempt to introduce new taxes or reduce subsidies will face stiff political opposition, yet failure to do so risks losing IMF support and destabilising the external account. This is the fundamental dilemma at the heart of the next budget.

In the end, the new budget will be judged not by its arithmetic alone, but by its elemental courage. Pakistan has achieved a measure of hard-won stability — the State Bank’s foreign exchange reserves have strengthened to $15.1bn (as of April 17) and are projected to climb to $18 billion by June 2026. But this stability is fragile, threatened by external shocks and internal constraints alike.

 

[HAIDER]

To view this content we will need your consent to set third party cookies.
For more detailed information, see our cookies page.

Accept third party cookies

 

[ACE OF HEARTS]

Please eliminate tax exemptions from organization's, running in the name of martyrs.

 

[Mr X]

so whats the size of our GDP now?

411 billion usd was until last year...

 

[VCheng]

so whats the size of our GDP now?

411 billion usd was until last year...

The Pakistani budget in my view:

 

[ghazi52]

Economy to 'grow by 4pc' in FY26, says finance minister​

Mubarak Zeb Khan
April 28, 2026



Finance Minister Muhammad Aurangzeb, speaks during the High-Level European Union–Pakistan Business Forum (EU–PKBF) in Islamabad on April 28, 2026. — AFP

ISLAMABAD: Finance Minister Muhammad Aurangzeb on Tuesday said Pakistan’s economy is projected to grow by four per in the current fiscal year, citing improving macroeconomic indicators as a sign of recovery.

The minister made these remarks while inaugurating the first high-level EU Pakistan Business Forum in Islamabad, organised by the European Union in collaboration with the government of Pakistan, marking a key step in strengthening bilateral economic ties.

On April 16, the State Bank of Pakistan announced that Pakistan recorded a surplus of $1,070 million in March compared to a surplus of $23m in February.

He expressed satisfaction over the performance of IT exports, the positive trajectory in value-added sectors, and the continued rise in remittances.

The finance czar further stated foreign exchange reserves are expected to reach around $18bn by the end of June, providing an import cover of three months.

Earlier this month, the Asian Development Bank (ADB) upgraded Pakistan’s economic growth rate to 3.5pc for the current fiscal year.

 

[Mr X]

The Pakistani budget in my view:

View attachment 194563

I understand your opinion sir but I am still interested in numbers.

Pakistan's GDP as per the last budget was around $411 billion dollars with the exchange rate of 279.

As far as I know, the USD did not depreciate since last year so the exchange rate is still around 279-80. The finance minister says that Pakistan's GDP grew by about 4% this year and basic check on the newspaper suggests the inflation rate was around 7.5%. It means the final figure will likely be around $458 to $460 billion USD in dollar terms.

But instead of doing the calculation myself, I thought maybe someone will have the more accurate figure from the newspaper.

 

[ghazi52]

Challenges for the next budget​

Mohiuddin Aazim
April 27, 2026

Any attempt to introduce new taxes or reduce subsidies will face stiff opposition, yet failure to do so risks losing IMF support.

Pakistan approaches its next federal budget not with optimism, but under the weight of numbers that have grown more unforgiving since the original assessment.

Between July 2025 and February 2026 alone, the federal government’s debt rose by a staggering Rs1.99 trillion to Rs79.9tr, including external debt equivalent of Rs23.2tr, according to the State Bank of Pakistan.

The International Monetary Fund (IMF), in its April 2026 Fiscal Monitor, estimated gross government debt at 70.1pc of GDP for the current fiscal year.

More alarming still, debt servicing continues to devour an estimated 50pc or more of total revenues. During the first half of the year, interest payments on public debt reached Rs3.56tr — more than double the combined allocations for defence and the Public Sector Development Programme. This is no longer just a budgetary imbalance; it is structural captivity, where the past dictates the future.

This reality is further complicated by binding commitments under the IMF’s $7 billion programme, where disbursements are now tied to time-bound structural reforms. The fiscal framework is no longer purely domestic — it is externally anchored, with policy direction increasingly shaped by compliance milestones rather than discretionary priorities.

Any attempt to introduce new taxes or reduce subsidies will face stiff opposition, yet failure to do so risks losing IMF support

The fiscal deficit, while projected to improve, remains a high-wire act. The IMF projects Pakistan’s fiscal deficit at 3.2pc of GDP during the current fiscal year and next — down from 5.4pc in FY25. Yet the Fund’s own medium-term outlook is deeply troubling: it forecasts the deficit rising again to 3.6pc of GDP in FY30 and further to 4.6pc in FY31. T

 

[VCheng]

I understand your opinion sir but I am still interested in numbers.

Pakistan's GDP as per the last budget was around $411 billion dollars with the exchange rate of 279.

As far as I know, the USD did not depreciate since last year so the exchange rate is still around 279-80. The finance minister says that Pakistan's GDP grew by about 4% this year and basic check on the newspaper suggests the inflation rate was around 7.5%. It means the final figure will likely be around $458 to $460 billion USD in dollar terms.

But instead of doing the calculation myself, I thought maybe someone will have the more accurate figure from the newspaper.

Pakistan's numbers are highly manipulated and do not reflect reality. That being said, the budget will present numbers, should you regard them as believable. For example, what do you think about the quoted inflation rates, or even the official exchange rate?

 

[ghazi52]

CORPORATE WINDOW: ​

Industry prepares budget Wishlist​

Afshan Subohi
April 27, 2026
https://whatsapp.com/channel/0029VaMc238IiRov8okfYy3n
As inflation climbs into double digits, most Pakistanis are living day to day, struggling to make ends meet. With the national budget under preparation, it is a busy period for corporates, who rely on networks for insights into likely measures while using formal and informal channels to engage policymakers and present their wish lists.

Ordinary Pakistanis, largely disengaged from the technicalities of budget-making and wary of number juggling, judge national budgets by their impact on their pockets. A politically opinionated public remains sceptical, expecting little relief from a government preoccupied with geopolitics currently.

Businesses, while backing Prime Minister Shahbaz Sharif’s globally recognised peace initiatives, want the same urgency applied to removing domestic irritants that deter investment, weaken capital formation and constrain job creation.

While most regional and sectoral business bodies are still finalising their proposals, information gathered suggests that several leading national business forums submitted detailed budget recommendations to the government earlier this month and remain actively engaged with the official economic team.

Several leading national business forums have submitted detailed recommendations to the government and remain actively engaged with the official economic team

Khurram Schehzad, adviser to the finance minister, confirmed the month but not a specific date. “The budget will be announced in June as usual, though the exact date has yet to be decided. It is likely to be in the first half of the month,” he said when approached. Senior officials at the Ministry of Finance declined to comment on any budget-related matters at this stage.

“Without bold initiatives to energise the private sector, boost capital formation, create jobs and deliver a decent GDP growth rate, improved global perception will not suffice. We understand the value of adverse image well, having often faced difficult, even humiliating, treatment from trade partners during negotiations,” a distressed tycoon said privately.

“One must also remember, however, that lasting strength and respect of a country in the comity of nations rests on economic resilience. If we fail to put our house in order, the goodwill earned with effort will dissipate quickly,” he added.

According to senior officials involved in the budget process, the Pakistan Business Council (PBC) has presented its policy recommendations to Finance Minister Aurangzeb Khan in Islamabad ahead of his departure for the Spring Meetings of the World Bank and the International Monetary Fund in the US.

During the interaction, the PBC highlighted structural and external barriers constraining export growth.

It pointed to a slightly overvalued exchange rate and cited smuggling, dumping and under-invoicing as key factors undermining competitiveness, alongside limited market access and weak trade agreements. With exports at around 10–10.5 per cent of the GDP, Pakistan lags behind peers such as India, Bangladesh and Vietnam.

The council called for a shift from import substitution to export-led growth, supported by duty-free access to raw materials, stronger export financing and insurance. It recommended restoring the one per cent Final Tax Regime to ease liquidity and fully reinstating the Export Facilitation Scheme to reduce input costs.

 

[ghazi52]

OICCI proposals focus on broadening the tax base and creating a more equitable tax framework by bringing under-taxed sectors, including agriculture, retail, wholesale, real estate and services into the documented economy through a structured digitised approach.

The chamber has also proposed phasing out the Super Tax, lowering corporate tax rates to improve regional competitiveness, rationalising withholding taxes, and gradually reducing sales tax.

It further called for faster tax refunds, better coordination between federal and provincial tax authorities, and a curb on excessive audits and recovery actions.

On the broader role of business, Mr Aleem emphasised that the private sector remains central to investment, job creation, and economic stability. Despite policy challenges, OICCI members, many of whom represent multinational firms, continue to invest and expand.

With a stable and predictable policy environment, he said, businesses can scale up investment, strengthen supply chains, boost exports, and create quality jobs, helping revive demand and sustain long-term growth.

Eizaz Sheikh, a senior leader of the cement industry, urged the government to rein in spending, ease the tax burden on industry and accelerate the privatisation of resource-draining state-owned enterprises to put the economy back on a sustainable growth path.

 

[Mr X]

Pakistan's numbers are highly manipulated and do not reflect reality. That being said, the budget will present numbers, should you regard them as believable. For example, what do you think about the quoted inflation rates, or even the official exchange rate?

Based on our previous discussions, I do agree that Pakistan's rupee falls by about 10% against the USD on yearly basis but since 2022 to 2024, it fell sharply and long due for correction.

Pakistan's GDP is not highly manipulated as it is strictly monitored by the IMF and compared to rest of the south asia, it is underperforming.