Pakistan Unveils Rs18.77 Trillion Federal Budget

The Government of Pakistan has presented a federal budget of Rs18.77 trillion for fiscal year 2026-27, reflecting a policy framework focused on fiscal consolidation, enhanced defence preparedness, and compliance with commitments under the country’s ongoing programme with the International Monetary Fund (IMF).

Presenting the budget before the National Assembly of Pakistan, Muhammad Aurangzeb announced an allocation of Rs3 trillion for defence expenditure for the fiscal year commencing in July 2026, representing an increase of approximately 18% compared to the outgoing fiscal year. In contrast, federal development spending has been allocated Rs1 trillion, reflecting continued fiscal constraints amid competing budgetary priorities.

According to the Finance Minister, the increase in defence expenditure follows consultations with provincial governments regarding the allocation of fiscal resources for national security requirements. Provincial development programmes were also reportedly scaled back in advance of the budget to create additional fiscal space.

The minister stated that defence allocations had been significantly enhanced in view of prevailing regional uncertainties and security considerations.

The budget underscores the limited fiscal flexibility available to the government as debt servicing obligations, defence requirements, and IMF performance targets continue to consume a substantial portion of available resources. Consequently, development spending and broader economic relief measures remain constrained.

For fiscal year 2026-27, the government has set a tax collection target of Rs15.26 trillion for the Federal Board of Revenue, representing an increase of approximately 8.2% over the previous year’s target of Rs14.13 trillion, despite the tax authority’s inability to fully achieve its revenue objective during the outgoing fiscal year.

The budget projects a federal budget deficit of Rs7.02 trillion. However, after accounting for an anticipated provincial surplus of Rs1.79 trillion, the consolidated fiscal deficit is projected at Rs5.23 trillion, equivalent to approximately 3.6% of gross domestic product (GDP).

A substantial portion of government revenues is expected to be generated through taxes, duties, and levies, including the petroleum levy, with total revenue collections projected at Rs20.60 trillion.

The budget has been introduced amid growing economic pressures, including renewed inflationary concerns linked to rising global energy prices following the ongoing conflict involving the United States, Israel, and Iran. The resulting increase in international oil prices has contributed to inflationary risks at a time when Pakistan’s economy had begun showing signs of stabilisation.

The government has established macroeconomic targets of 4.0% economic growth and 8.2% inflation for fiscal year 2026-27. These projections compare with estimated economic growth of 3.7% for fiscal year 2025-26 and average inflation of 6.7% recorded during the July-May period of the outgoing year.

Pakistan also remains committed to maintaining compliance with its $7 billion IMF programme, having narrowly avoided sovereign default in 2023. Under programme commitments, the government has agreed to achieve a primary budget surplus equivalent to 2% of GDP during the coming fiscal year.

Achieving this target requires the government to generate revenues in excess of non-interest expenditures, thereby limiting fiscal space for tax reductions, subsidy expansions, or large-scale welfare initiatives.

Economic analysts have noted that the burden of additional revenue mobilisation may continue to fall disproportionately on salaried individuals and businesses already operating within the documented economy, while sectors such as agriculture, retail trade, and real estate remain comparatively difficult to bring fully within the tax net.

The proposed budget therefore reflects a balancing act between fiscal discipline, IMF compliance, security-related expenditures, and economic growth objectives amid a challenging domestic and international economic environment.