ISLAMABAD:
The government is set to unveil a massive Rs17.5 trillion (about $61 billion) consolidated budget for the 2026-2027 financial year on Friday (today) to meet strict austerity conditions set by the International Monetary Fund.
The framework sets an ambitious tax target for the Federal Board of Revenue at Rs 15.267 trillion and targets GDP growth of 4.1%.
The high spending plan balances fiscal austerity and the IMF’s structural directives, while introducing relief measures for the poorest citizens and modest wage increases for government employees.
The budget comes as a large part of the population continues to feel the effects of the war between Iran and the United States, with no signs that the conflict is easing.
The government will propose measures to raise revenue and cut spending, while protecting the country’s poorest.
Under pressure to meet austerity conditions from the International Monetary Fund, Finance Minister Muhammad Aurangzeb will unveil a delayed Rs17.5 trillion spending plan.
The budget had been formulated keeping in mind the existing challenges faced by the economy on national and international fronts.
In addition to financial management, revenue mobilization, measures for economic stabilization and growth, reduction in non-development expenditure, job creation and people-friendly policies for the country’s socio-economic prosperity will be included in the budget.
The burden of higher fuel and power costs and taxes will largely fall on formally registered businesses and wage earners, as politically powerful sectors such as agriculture, retail and real estate remain difficult to tax, experts say.
Policymakers must contend not only with the terms of the latest IMF bailout, but also an overall impact of the US-Israeli war against Iran – a conflict Islamabad has sought to mediate.
The rise in oil prices triggered by the war has driven Pakistan’s inflation back into double digits, just as the economy appeared to be finding its footing.
The government is targeting economic growth of 4.1% for 2026-2027, up from this year’s forecast of 3.7% and above the IMF’s forecast of 3.5%, and targeting full-year inflation of 8.2%, well below the 11.7% reported for May.
But business confidence was the lowest in May since S&P started its manufacturing survey last year, while input costs hit a 21-month high and employment fell for a second month.
The central bank raised interest rates by one percentage point in April, its first increase in nearly three years. The government is pressuring the Federal Tax Agency to raise next year’s tax collections to 37% above the target for this year – which the agency stands to miss.
The extensive informal economy keeps much of Pakistan’s cash out of reach of the FBR: Only 1.3% of Pakistanis filed returns showing taxable income last year, and only 7.7% of adults have a debit or credit card.
The number of taxpayers has increased, but the income has not kept up. Corporate tax rates are already high by global standards, while raising income tax would crush purchasing power, which is still recovering from two years of inflation.
Economic development spending is under pressure: Planning Minister Ahsan Iqbal said no new projects would be launched in the coming year except for defense and home policies.
The budget is expected to protect the poorest citizens by giving them cash transfers. The government has not accounted for the one-week delay in submitting the budget.
