On Tuesday, in a session of the National Assembly, Finance Minister Muhammad Aurangzeb unveiled the much-anticipated federal budget for the fiscal year 2025-26. With a total outlay of Rs17.57 trillion and a growth target of 4.2%, the budget comes during political tension, particularly following recent escalations with India.
Key Economic Targets
- GDP Growth: The government expects the economy to grow by 4.2% in FY26
- Inflation: Forecasted to drop 7.5%, a welcome change after years of hikes.
- Budget Deficit: Budget deficit proposed at 3.9%, while a primary surplus of 2.4% of GDP is projected, a clear move towards fiscal tightening.
Spending & Revenue Breakdown
- Total Budget Outlay: Rs17.6 trillion, slightly lower than last year.
- FBR Tax Revenue: Projected to rise 18.7%, reaching Rs14.13 trillion.
- Non-Tax Revenue: Estimated at Rs 5.15 trillion.
- Public Sector Development Programme (PSDP): Rs1 trillion allocated for infrastructure and social programs.
- Interest Payments: Rs8.2 trillion, slightly lower than last year, thanks to better debt management.
- Defence: A significant chunk, Rs2.55 trillion, goes to defence, as anticipated.
Sector-Wise Growth Expectations
- Agriculture: 4.5%
- Industry: 4.3%
- Services: 4%
This reflects a more balanced approach to economic expansion, though actual performance will hinge on external and internal stability.
What People Get: Welfare & Social Spending
- Benazir Income Support Programme (BISP): Budget increased by 21%, now at Rs716 billion, a positive sign for low-income families.
- Pensions: Rs1.05 trillion
- Subsidies: Rs1.19 trillion
- Higher Education Commission: Rs39.5 billion
- Science and Technology: Rs 4.8 billion
While these allocations look good on paper, experts caution that spending alone won’t solve deeper issues unless structural reforms follow.
Taxes, Reliefs, and Controversies
The budget includes several tweaks aimed at broadening the tax base and streamlining the system:
- Super Tax (Section 4C): Slight reduction for income brackets between Rs200 million to 500 million.
- Tax on Solar Panels: A controversial 18% tax has been proposed, potentially slowing solar adoption.
- Real Estate: Reduction in advance tax on immovable property, but critics argue it favors speculative investors.
- Income Tax: The 5% slab for income between Rs60k–120k per month is proposed to drop to 1%, while subsequent slabs also see small cuts.
- Carbon Tax: A new Rs2.5/litre levy on petrol, diesel, and furnace oil.
Interestingly, there’s no change in taxes on stocks, fertilizers, or pesticides.
Voices from the Experts
Despite these positive figures, economists have mixed views:
- Adil Nakhoda highlighted the reduced budget outlay as unusual but logical due to lower debt costs. He stressed the need to expand the tax base rather than burden existing taxpayers.
- Sajid Amin Javed appreciated the efforts to rationalize tariffs and simplify the tax system but felt that the budget lacked bold structural reforms, particularly in sectors like wholesale, retail, and agriculture.
- Uzair Younus called the budget “unremarkable”, but not necessarily in a bad way. He believes the government is rightly avoiding risky fiscal expansion during a fragile recovery.
- Afshan Subohi, a senior journalist, remarked, “If the 2025-26 budget proposals are truly bold or strategic, the finance minister must clearly explain how. What elements in revenue generation or spending priorities distinguish this budget as one that addresses the structural flaws in Pakistan’s economic framework?”
The Bigger Picture
While the budget succeeds in presenting a disciplined financial framework, many observers feel that it falls short of offering a transformative economic strategy. The emphasis remains on stabilization and IMF compliance, with limited progress on long-discussed reforms like bringing untaxed sectors into the fold or shifting toward a more equitable tax system.
Nonetheless, there are some positive signals, especially in trade liberalization, inflation control, and digital progress that hint at a more competitive economy in the long run.
