The federal budget for the upcoming fiscal year sets ambitious targets—most notably a substantial reduction in the consolidated fiscal deficit to 3.9% of GDP, down from this year’s 5.9% target. This move appears driven by the government’s desire to secure a favourable outcome in the second review of the $7 billion IMF programme scheduled for September.
The provinces, often seen as contributors to the federal government’s fiscal struggles due to the larger shares they receive under the NFC award, have been asked to provide a record cash surplus of Rs1.5 trillion—50% more than last year’s requirement. This provincial contribution is pivotal to the government’s consolidation drive and signals a stronger emphasis on coordinated fiscal management.
The budget offers some relief to salaried taxpayers—partially meeting long-standing demands from the middle class. However, this has been made possible largely due to a Rs1 trillion saving in debt servicing costs, courtesy of falling domestic interest rates. That same fiscal cushion has also facilitated tax concessions to powerful lobbies, notably the real estate sector—suggesting that political expediency still influences fiscal decision-making.
Yet for all its headline figures and positive signals, the budget stops short of initiating meaningful structural reform. Those who hoped that recent macroeconomic stability would be a launchpad for a transformation of Pakistan’s economic model are likely to be disappointed. Beyond the pursuit of stabilisation, the budget offers few concrete steps toward long-term sustainability or inclusive growth.
Nevertheless, the document does include a few notable measures. The initiation of long-overdue tariff reforms aimed at phasing out protection for inefficient, rent-seeking industries over a five-year horizon is a step in the right direction. Similarly, efforts to expand the tax base through restrictions on non-filers—such as limiting access to high-value securities and vehicles—signal an attempt to improve tax compliance.
The proposed removal of sales tax exemptions for industries in the former FATA and PATA regions also seeks to level the playing field across sectors and geographies. These changes, if implemented effectively, could contribute to better economic governance.
However, the government continues to overlook some critical issues. The finance minister acknowledged the concerns of the corporate sector but did little to address them. The inequitable tax burden remains: industry, which accounts for just 18% of GDP, is responsible for nearly 60% of the tax revenue. The marginal reduction in the controversial super tax is unlikely to reverse the trend of declining investment and a contracting industrial base.
Without substantial reform to make taxation more equitable and to improve industrial competitiveness, the government’s stated aim of boosting exports to $100 billion under its Uraan programme appears more aspirational than achievable. Foreign direct investment remains stagnant, and large-scale manufacturing continues to shrink under the weight of unfavourable policy.
The budget projects economic growth of 4.2% for the coming year. But such growth targets cannot be met without first shifting the underlying dynamics of a low-productivity, consumption-led economy. Stability, while welcome, is not the same as progress. Unless this budget becomes a starting point for deeper, more courageous reform, Pakistan risks slipping back into its familiar cycle of short-lived recoveries and long-term stagnation.
