Pakistan at the Brink: Challenges, Choices, and the Crucial 2025–26 Budget”
As Pakistan prepares to present its federal budget for the fiscal year 2025–26 on June 10, the country finds itself at a defining moment. The upcoming budget is far more than a routine financial statement—it is a crucial roadmap that will determine whether Pakistan can stabilize its fragile economy or continue down a path of recurring crises. Against the backdrop of political turbulence, economic stress, and ongoing negotiations with the International Monetary Fund (IMF), this budget could set the tone for years to come.
Economic Outlook: Fragile Recovery in a Volatile Climate
Pakistan’s economy is showing cautious signs of stabilization. The GDP growth for FY2024–25 is projected at 2.68%, slightly below the government’s 3.6% target. This is a modest recovery, aided by declining inflation and interest rates. The State Bank of Pakistan has cut the policy rate to 11%, down from last year’s peak of 22%, signaling a shift toward growth stimulation.
Inflation, which had surged to nearly 40% in mid-2023, has impressively slowed to 0.3% in April 2025. However, industrial performance remains under pressure, especially in mining and large-scale manufacturing, which contracted by over 1%. Structural issues such as energy shortages, tax evasion, and inefficient governance continue to stifle industrial rebound.
IMF and Fiscal Realism: Budget Under Watch
The 2025–26 budget is being drafted amid ongoing talks with the IMF. The global lender is pushing for strong fiscal discipline, targeting a 1.6% primary budget surplus. Pakistan, which recently secured a $1 billion IMF tranche in May, must adhere to tough conditions to remain eligible for further support under a potential new Extended Fund Facility.
The original budget date of June 2 was shifted to June 10 to accommodate Eid holidays and, more importantly, to align fiscal targets with IMF benchmarks. This delay signals the seriousness of the negotiations—and the delicate balance the government must maintain between IMF demands and public expectations.
Key Budget Features: Between Austerity and Ambition
The government is expected to unveil a budget that seeks to curb excessive spending while broadening the tax base. The fiscal deficit is projected at Rs 6.5 trillion, or 5.1% of GDP. Total revenue (including non-tax) is estimated at Rs 17.8 trillion, with the Federal Board of Revenue (FBR) aiming to collect Rs 14.3 trillion—a substantial jump from the current year’s Rs 11.83 trillion.
Planned measures include:
Imposing GST on petroleum products.
Expanding the tax net to include wholesalers and retailers.
Rolling back certain tax exemptions.
Yet, in a controversial move, the government is set to increase defence spending by 18%, raising the allocation to over Rs 2.5 trillion. In a country where nearly half the population struggles with food insecurity, this has sparked intense public debate over fiscal priorities.
Socio-Political Undercurrents: Beyond the Numbers
Economic policymaking in Pakistan does not happen in a vacuum. The political environment remains tense. PTI’s street agitation following failed negotiations with the ruling coalition continues to strain the administrative focus. Moreover, recent heatwaves and environmental disasters have severely impacted agriculture, pushing more citizens below the poverty line.
On the security front, operations like Azm-e-Istehkam reflect growing concern over internal threats. These issues, while often outside the fiscal debate, directly impact the government’s ability to govern effectively and implement policy reforms.
Conclusion: The Budget That Must Deliver
The 2025–26 federal budget is a test of Pakistan’s political will, economic strategy, and social responsibility. It must offer a clear and credible path to growth while addressing inflation, unemployment, and poverty. It must reassure the IMF without alienating citizens. And above all, it must lay the foundation for long-term reforms rather than short-term fixes.
If handled with foresight, this budget could become a turning point for Pakistan. If mishandled, it may very well deepen the nation’s economic woes and social unrest. The stakes, in every sense, could not be higher.
