Pakistan's Budget 2025-2026

Pakistan's Budget 2025

On June 10, 2025, Pakistan Finance Minister Muhammad Aurangzeb tabled the federal budget Pakistan in the federal fiscal year 2025-26 that was devised to cover a ₨ 17.57 trillion approach involving macroeconomic stability, meet obligations of the IMF and increase public faith. The economic policy in Pakistan is undergoing a transformation as the budget 2025 will concentrate on four areas to that effect such as fiscal discipline, tax reforms, and strategic growth, among others.

Key Highlights

CategoryDetails
Total Budget Outlay₨17.57 trillion
Fiscal Deficit Target3.9% of GDP
Primary Surplus Target2.4% of GDP
GDP Growth Target3.6%–4.2%
Average Inflation12% (down from 20 %+ last year)
FBR Tax Revenue Target₨14.13 trillion (₨6.9T direct, ₨7.2T indirect)
Non-Tax Revenue Target₨5.17 trillion
Debt Servicing Allocation₨9.77 trillion (55% of budget)
Defense Budget₨2.55 trillion (17% increase YoY)
PSDP (Development Budget)₨1.4 trillion (↑48% YoY)
Education Allocation₨93 billion
Health Allocation₨80 billion
Social Safety (BISP, etc.)₨593 billion
Climate Resilience Allocation₨130+ billion + new Carbon Tax
Privatization Target₨500 billion 
IMF Support$7 billion under new 3-year EFF program
External Financing Goal$17 billion (multilateral + bilateral)

A Focus on Stabilization Over Expansion

The budget 2025-26 is a consolidation budget as opposed to the past years which were populist based spending. The federal government also tries to achieve a fiscal deficit target of 3.9 percent of GDP and expects to have a primary surplus of 2.4 percent as it is very much willing to achieve its IMF obligations and regain investor confidence. The budget pegs the growth of GDP in the range of 3.6-4.2 per cent and the rate of inflation is assumed to average at 12 per cent, which is a huge improvement compared to more than 20 per cent in the preceding fiscal year. Such projections are pessimistic but required since Pakistan is trying to regain fiscal stability without financial protection.

Budget Volume and Revenue Targets

Budget Volume and Revenue Targets

The overall expenditures of FY2025-26 amount to 17.57 trillion rupees and it is the responsibility of the Federal Board of Revenue (FBR) to collect an unprecedented 14.13 trillion of taxes. This includes:

  • ₨6.9 trillion in direct taxes
  • ₨7.2 trillion in indirect taxes

Non-tax revenue is also estimated at 5.17 trillion rupees (apart from tax rates) based on petroleum levies, State-owned enterprise dividends and earnings by the State Bank of Pakistan. There are an estimated 11.07 trillion left in net federal revenue after 8.2 trillion in NFC Award are transferred to the provinces. This will finance federal spending, such as debt payment, defence, and development as well as subsidies.

Debt Servicing

A heavy proportion of the budget amount of 9.77 trillion (55%) is devoted to the service of debt, foreign and domestic obligations. This still limits the possibilities of Pakistan to provide funds to its development as well as welfare. Although there is some further slight reduction in interest rates, the level of overall indebtedness remains one of the structural weaknesses. The government is seeking to arrest the public debt-to-GDP ratio but as it awaits repayments to international lenders, particularly the IMF and China, this is not easy.

Defense and Security

The defense budget of the government is 2.55 trillion rupees, which is 17 percent more than in the previous year. This includes:

  • Military salaries and pensions
  • The acquisition of the latest weapons and firearms
  • Security improvements in the borders, particularly in the East and West borders

The defense budget has been considered as a priority due to regional tensions and the rising internal security threats in the country despite critics which have criticized that the budget has diverted focus to the social sectors.

Public Sector Development Program (PSDP)

Public Sector Development Program (PSDP)

The development budget within the Public Sector Development Program (PSDP) is worth 1.4 trillion, an increase of 48 percent since the previous year. This budget is a government budget that is meant to increase the economy by building massive projects in the infrastructure, energy and social sectors. Key allocations are:

  • ₨253 billion for energy and water projects
  • ₨199 billion for transport and communication
  • ₨86 billion for education and health
  • ₨40 billion for climate change adaptation
  • ₨80 billion for special economic zones (SEZs) under CPEC

The PSDP is also concerned with de-centralized coordination with provinces funding a complementary infrastructure and education program to federal objectives.

Federal Government: Expansion of Salary and Pension

Within the federal budget Pakistan 2025-26, the federal government has disclosed a 10% increment in salaries of all the government workers belonging to Grades 1 to 22. This step was a hike in the number given by the earlier-proposed 6%, approved by the federal cabinet led by Prime Minister Shehbaz Sharif. More so, federal pensioners were provided with relief as they were awarded a 7% increment in pensions so as to alleviate the current inflationary pressures.

The government came up with extensive pension reforms in order to make the financing of pensions sustainable in the long run. The end of the dual-benefit system is engaged by the retired government servants, where they are entitled to take up re-employment in the government sector but they have a choice between accepting a pension or a salary. 

Moreover, family pension is limited to 10 years and now no multiple pensions are valid. One of the major changes in policy is the declaration to introduce pension increments which will be calculated according to Consumer Price Index (CPI) levels and will be responsive to inflation. Also, a 5 percent tax has been introduced on the yearly income of pensioners below the age of 70 years at Rs 10 million, but with an exception for lower-income pensioners.

Punjab Budget 2025-26: Hike in Salary, Pension and Wage

The Punjab government also joined in by declaring a 10 percent pay rise for its employees (Grade 1-22) and a 5 percent pay rise for its retired employees. As an additional measure in favour of workers, Punjab increased the minimum monthly wage to Rs 40,000 so as to reduce the economic pressure on low-income families. The provincial budget was termed as the zero-tax, people-friendly budget, and huge emphasis was placed on the development projects and welfare of the people.

Striking the Right Budget and Welfare Balance

Those salary and pension increases at both the federal and provincial levels are attempts to balance between social welfare and fiscal responsibility. Although the reforms alleviate pressure on the employees and pensioners, they aim at long-term reduction of spending to adhere to the agreements with the IMF. These developments are characteristics of the overall management of the economy to stabilize as an effort to enhance efficiency in the public sector, and serve vulnerable groups in an attempt to consolidate the economy.

Social Sector Spending

Pakistan’s long-standing underinvestment in health and education continues. In this budget 2026:

  • ₨93 billion is allocated to education
  • ₨80 billion is set aside for healthcare

Although there are improvements in these figures, most economists believe that Pakistan has to spend at least 4 percent of its GDP on education and 3 percent on health in order to raise human capital and to decrease inequality. Minor increases were given to such programs as Ehsaas and BISP (Benazir Income Support Program), and 593 billion Rupees were allocated to social safety nets.

Tax Reforms

One of the logical characteristics of this budget is expanding the tax sphere and making compliance easier. Significant tax reforms will be:

Direct Taxes

  • New income tax slabs for high-income earners shall be introduced
  • Higher taxes on non-filers in the case of banking transactions
  • The broadening of withholding tax on professionals, freelancers, and service providers

Indirect Taxes

  • FED was higher on sugary beverages, luxury vehicles, cement and cigarette smoking
  • Low taxation on raw materials to facilitate exports industries

Real Estate and Digital

  • Tax Rebates granted on digital payment
  • The updated capital gains tax on the sales of properties
  • Documentation drive on retailers, traders and freelancers

The government is banking on the expansion of the tax base by taxing the untaxed industry, including agriculture, real estate and retail so that they can collect sustainable revenues without taxing the salaried class excessively.

Agriculture and Rural Development

With agriculture accounting for almost 20 percent, the government announced a 5 billion package on:

  • Chemical fertilizers and seeds at subsidized prices
  • Tube wells operated by the use of sunlight Tube wells operated by the use of sunlight
  • Crop insurance
  • Low-interest loans in agriculture

A parallel tax enforcement plan will, however, usher the big land owners into the tax net, which is bound to meet with political opposition.

Industrial and Export Sector Incentives

The budget provides: 

  • To facilitate domestic output and enhance exports, the budget provides:
  • If the overseas industry is export-oriented, it is exempt from taxes.
  • Industrial input duties
  • Expanded special technology zones
  • Facility of SMEs on credit guarantee schemes of Rs.40 billion

The industries that will benefit in Pakistan will be textile, pharma and IT. The government likewise declared incentives to the electric vehicle (EV) industry such as a decrease in the import duty that is charged on EV components.

Climate Change and Environment

First, the government spent more than 130 billion in relation to mitigation measures against climate change such as:

  • Flood protection infrastructure
  • Urban draining upgrades
  • Renewable energy projects

A Carbon Tax on diesel and petrol consumption has also been established as a way of cutting carbon emissions and embracing green energy.

SOEs Privatization and Reforms

The government revealed its desire to overhaul and privatize state-owned enterprises that had made losses and the latter numbered PIA, Pakistan Steel Mills and DISCOs (power distribution companies). The privatization will yield a revenue of 500 billion in current fiscal year. Besides, the restructuring is also taking place to:

  • Hire specialists in the management of SOEs
  • Improve transparency
  • Only loss-making entities should be guaranteed by the government

IMF Program and External Financing

This budget- 2026 is well-linked with the terms of a new three-year Extended Fund Facility (EFF) arrangement with the IMF. In turn, Pakistan will get up to 7 billion dollars in funding, which will assist:

  • Increase the foreign exchange reserves
  • Put a stronger rupee
  • Open up to foreign capital markets once again

There is also the projection of the government coming to a total external financing of 17 billion, inclusive of bilateral and multilateral funding.

Provincial Allocations and Fiscal Coordination

According to the NFC Award, NFC will transfer 8.2 trillion to provinces. The provinces are expected by the federal government to:

  • Discontinue non-development spending
  • Axing tax policy
  • Enhance local taxation.
  • Share development programs particularly in health and education

It is also increasingly being discussed that the NFC formula has to be changed, especially during times of increasing federal debt and defence expenditure.

Budget 2025–26 Massive Relief for Pakistan’s Real Estate Sector

Budget 2025–26: Massive Relief for Pakistan’s Real Estate Sector

In Budget 2025-26, the Government of Pakistan has implemented far-reaching reforms to rejuvenate and stimulate the real estate sector, including Eastern Housing Lahore by providing the highest ever tax breaks and financial support to the housing sector. By large slashing out of withholding tax (WHT), the removal of federal excise tax (FED) and a severe reduction of stamp duty in Islamabad by 4% to 1%, the government has considerably reduced the transaction costs of the buyers and investors. 

Also, it envisages tax-exempt credits on houses worth up to 10 marlas and apartments in a 2,000-sq-ft area in addition to new mortgage financing packages in a bid to reach out to the middle-income families to buy homes. These are some of the many measures in a vision to reform the industry so that it shifts the informal to the institutional sector, supports low-cost housing, opens up mortgage finance, and enhances transparency. The reforms not only trigger the current growth but also prepare the ground towards a regulated, inclusive, and investor-friendly real estate market that meets international housing development profiles.

Conclusion

The Budget 2025-26 shows a sober and sound effort by Pakistan to stabilize the economy and be fiscally responsible and pay its international obligations. High on development, export promotion, tax reform, and climate resilience focus, this budget can be a game changer in the history of Pakistan, yet only with an effective execution, people’s support and institutional determination. The government has provided a plan of action on reigning in a perfect balance between growth and austerity, relief and reforms and spending and sustainability. 

Yet the bigger challenge is to come, that of implementing policies, withstanding political influence and attaining major reform areas like an increase in revenues, restructuring of state-owned enterprises, and spending in targeted social expenditure areas. Credibility, investor confidence, and international networks will be necessary to stabilise the macroeconomy and open up long-term prosperity. When Budget 2025-26 is done correctly through this era, it may be possible to remember that it marks the start of a more inclusive, transparent, and robust economic age for Pakistan, one that empowers human resources, promotes innovation, and guarantees fair and good growth in all provinces and sectors.