By Abdul Rafay Niazi

On June 10, 2025, Finance Minister Muhammad Aurangzeb presented the federal budget for FY2025–26 before a noisy National Assembly. It was passed on June 26 and signed into law on June 30.  The government called it a budget for a “historic moment.” Critics called it more of the same. Both, in their own way, are right.

At its core, the budget targeted GDP growth of 4.2%, sought to bring inflation down to 7.5%, and aimed to reduce the fiscal deficit to 3.9% of GDP with a primary surplus of 2.4% projected for the third consecutive year.  These are not unimpressive numbers on paper. The problem is what lies beneath them.

With a total outlay of Rs 17.573 trillion a deliberate 7% decrease from FY2024–25 the budget aligned squarely with IMF-mandated fiscal consolidation targets. Interest payments alone stood at Rs 8.207 trillion, with pensions adding another Rs 1.055 trillion, together dominating current expenditure.  In plain terms, the government spent more on servicing its past than investing in its future.

Defence spending rose by 20% to Rs 2.55 trillion roughly 2.5% of GDP surpassing the entire Public Sector Development Programme allocation of Rs 1 trillion.  This inversion where debt and defence crowd out development  is not new to Pakistan’s fiscal architecture. What was troubling was the absence of any serious attempt to disrupt it.

The revenue side told a similarly constrained story. The Federal Board of Revenue was assigned a tax collection target of Rs 14.1 trillion, representing a 19% increase year-on-year, alongside a non-tax revenue target of Rs 5.1 trillion.  Digitalization and AI-based audits were cited as enforcement tools  welcome innovations, but no substitute for the political will to tax agriculture and the informal economy, sectors that have evaded the net for decades.

Former Planning Commission chief economist Dr. Mohammad Ahmed Zubair put it bluntly: after stagflation in FY23 and FY24 and stagnation in FY25 marked by low growth, cooling inflation, rising unemployment, and shrinking consumer demand any rational policymaker would reach for stimulus. Instead, the government doubled down on fiscal austerity.

Analysts noted that fiscal space for productivity priorities, particularly education and health, remained critically limited.  A nation that allocates more to debt servicing than to human development is not stabilising it is postponing its reckoning.

FY2026–27: More of the Same, Under Heavier Skies

If FY2025–26 was a budget of constrained ambition, FY2026–27 arrives under even tighter constraints and with less room to manoeuvre.

The federal government has proposed a Rs 17.1 trillion budget for FY2026–27, setting a GDP growth target of 4.1%, an average inflation projection of 8.4%, and a tax revenue target of Rs 15.267 trillion.  The numbers are almost a mirror image of the previous year marginally smaller in outlay, marginally more ambitious in revenue, and equally dependent on a fragile external environment to hold together.

The context is darker than the headline figures suggest. The outbreak of the US-Iran conflict in early 2026 triggered a sharp increase in global oil prices, pushing inflationary pressures higher. Monthly inflation accelerated to 10.9% in April 2026, compared to just 0.3% in April 2025.  Against this backdrop, the government’s confidence in an 8.4% average inflation projection for FY27 requires some scrutiny.

The IMF has revised its own GDP growth projection for Pakistan in FY27 downward to approximately 3.5%, from an earlier forecast of 4.1%, citing Middle East conflict-related energy price pressures. The State Bank raised its policy rate by 100 basis points to 11.5% in April 2026 a hawkish signal that monetary policy will not accommodate fiscal loosening.

Research houses expect the government to maintain its fiscal consolidation path, targeting a fourth consecutive primary surplus, alongside a further improvement in the tax-to-GDP ratio. The IMF has raised the floor on FBR collections, projecting FY27 tax revenues of Rs 15.3 trillion requiring revenue growth of 14% to 20% depending on the final FY26 collection base.

This is an ambitious target. Achieving it through enforcement and base-broadening alone, without meaningful structural reform of who gets taxed and how, risks squeezing the already-burdened salaried class further while leaving the agriculture sector and informal economy largely untouched.

The IMF has set parliamentary approval of the FY2026–27 budget in line with staff agreements and targeting an underlying primary surplus of 2% of GDP as a central structural benchmark.  In other words, Islamabad does not fully own this budget. It is, to a significant degree, co-authored in Washington.

The broader picture is sobering. Goods and services exports stand at roughly $41 billion annually far below the government’s frequently stated ambition of $100 billion by 2030. Real per capita incomes remain below levels reached more than a decade ago. Pakistan’s average real GDP per capita growth has fallen to its lowest level since the 1960s.

What FY2026–27 demands and what successive budgets have failed to deliver is a shift away from IMF-era revenue patches toward long-term fiscal reconstruction: a low-rate, broad-based, predictable, and harmonised tax regime that encourages investment rather than incentivising evasion.

Two consecutive budgets of managed austerity have stabilised Pakistan’s balance sheet without transforming its economy. Stability purchased at the cost of growth, equity, and human development is not a strategy  it is a holding pattern. The question for FY2026–27 is not whether Pakistan can meet its IMF benchmarks. It probably can. The question is whether meeting those benchmarks will make any meaningful difference to the forty million Pakistanis who remain below the poverty line.

On that question, the budget as currently framed offers no answer.

The writer is Managing Director of Roze News Network, Editor of Daily The Patriot and Deputy Chairman Islamabad/ Rawalpindi committee Council of Pakistan Newspaper Editors