Sign in Subscribe
Budgets

Pakistan's 2025-2026 Budget Fails to Deliver Structural Reforms, Critics Say

Strategic Insights

— 2 min read

Finance Minister Muhammad Aurangzeb presented a Rs17.573 trillion budget for the fiscal year 2025-2026, with a 4.2% growth target, amidst criticism from economists and analysts. Despite ambitious plans for tariff rationalization and tax simplification, the budget has been deemed short on structural reforms and has been criticized for its lack of transparency and potential impact on financial inclusion.

Key Takeaways:

  • The budget has been reduced from the previous year, which economist Adil Nakhoda called an "anomaly" due to the decline in interest payments and debt as a percentage of GDP.
  • The increase in defence expenditures was anticipated, and the government planned to undertake tariff rationalization, but critics argue that this may not lead to better transparency in the process.
  • Macroeconomist Sajid Amin Javed praised the rationalization of the tariff regime, which aims to bring customs duties and other duties to zero in the next four to five years.
  • However, Amin also highlighted that the budget is silent on structural reforms and falls short on meeting the needs for increasing the tax base.
  • Political economist Uzair Younus described the budget as "unremarkable" and felt that it was more of a maintenance budget rather than a transformative one.
  • Associate professor of economics at LUMS, Ali Hasanain, pointed out that the big changes seen could be thought of more as accounting discipline rather than structural reforms.
  • He also highlighted that the reduced tax bill for the real estate sector encourages speculative investments and does not improve the external sector picture.
  • Senior journalist Afshan Subohi felt that the budget lacked a sense of transparency and that it was hard to discern any clear direction.
  • Dr Mohammad Ahmed Zubair, former chief economist at the Planning Commission of Pakistan, said that the budget is more driven by debt obligations than economic reality and that it's a tone-deaf commitment to fiscal austerity.

Statistics:

  • The total outlay of the budget is Rs17.573 trillion.
  • The government plans to achieve a 4.2% growth target.
  • The budget deficit is expected to decrease from 5.6% in FY25 to 3.9% in FY26.
  • The primary surplus target is expected to increase from 2.2% in FY25 to 2.4% in FY26.
  • Tax revenues are projected to rise by 19% while current spending (excluding debt servicing) is targeted to rise by 8.5% in FY26.
  • The debt servicing burden is expected to dictate national priorities, with the government planning to slash the budget deficit and raise the primary surplus target.

Sources:

  • Dawn.com
  • Pakistan's Finance Minister Muhammad Aurangzeb's speech
  • Economist Adil Nakhoda's comments
  • Macroeconomist Sajid Amin Javed's comments
  • Political economist Uzair Younus's comments
  • Associate professor of economics at LUMS, Ali Hasanain's comments
  • Senior journalist Afshan Subohi's comments
  • Dr Mohammad Ahmed Zubair's comments

Read more