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Public finance

Pakistan's Federal Budget 2025-26 Aims for Economic Recovery

Strategic Insights

— 2 min read

Pakistan's federal budget for the fiscal year 2025-26, presented by Finance Minister Muhammad Aurangzeb, projects a 4.2% GDP growth, a modest improvement from the previous year's 2.7%. The budget totals Rs17.6 trillion, a 7% reduction from last year's Rs18.9 trillion, with significant changes in taxation and fiscal policies aimed at supporting economic stability. The budget targets a Consumer Price Index (CPI) inflation rate of 7.5% for FY26, alongside a fiscal deficit of 3.9% of GDP, and a primary surplus of 2.4% of GDP.

Key Takeaways:

  • The budget targets a 4.2% GDP growth, a modest improvement from the previous year's 2.7%.
  • The budget totals Rs17.6 trillion, a 7% reduction from last year's Rs18.9 trillion.
  • The budget proposes to reduce income tax rates for the salaried class, with tax rates for those earning between Rs600,000 and Rs1.2 million being halved from 5% to 2.5%.
  • The government has proposed the addition of 114C section in the finance bill, which will impose restriction on economic transactions for non-tax filers.
  • The budget allocates Rs2.55 trillion for defense, marking an increase of over 20% compared to last year's Rs2.12 trillion.
  • The Public Sector Development Programme (PSDP) has been allocated Rs1 trillion, with Rs90.2 billion set aside for 47 energy sector development projects.
  • The federal tax collection target has been set at Rs14.13 trillion, a 9% increase from the FY25 target.
  • The government plans to issue Panda Bonds to access Chinese capital markets and aims to privatize state-owned assets such as Pakistan International Airlines (PIA) and the Roosevelt Hotel by FY26.
  • The budget introduces tax relief for salaried individuals, but the larger challenge of tax reform remains.
  • Pakistan's tax system continues to rely heavily on the formal sector, while many sectors, including agriculture, remain untaxed.

Statistics:

  • GDP growth: 4.2% for FY26, a modest improvement from the previous year's 2.7%.
  • Budget size: Rs17.6 trillion, a 7% reduction from last year's Rs18.9 trillion.
  • Fiscal deficit: 3.9% of GDP for FY26.
  • Primary surplus: 2.4% of GDP for FY26.
  • Consumer Price Index (CPI) inflation rate: 7.5% for FY26.
  • Federal tax collection target: Rs14.13 trillion, a 9% increase from the FY25 target.
  • Defense allocation: Rs2.55 trillion, marking an increase of over 20% compared to last year's Rs2.12 trillion.
  • Public Sector Development Programme (PSDP) allocation: Rs1 trillion, with Rs90.2 billion set aside for 47 energy sector development projects.

Sources:

  • Pakistan's federal budget 2025-26, presented by Finance Minister Muhammad Aurangzeb
  • Economic Survey 2024-25
  • Prime Minister Shehbaz Sharif's remarks to the federal cabinet before the budget address

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