Pakistan Budget 2025-26 – First Impressions – Asrar Qureshi’s Blog Post #1119

Pakistan Budget 2025-26 – First Impressions – Asrar Qureshi’s Blog Post #1119

Dear Colleagues! This is Asrar Qureshi’s Blog Post #1119 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to pharmaveterans2017@gmail.com  for publishing your contributions here.

Federal Minister for Finance Presenting Budget 2025-26

Preamble

Federal Budget for the fiscal year 2025-26 has just been announced and experts are working to understand, critique it, and offer opinions and suggestion. Federal cabinet, however, has already approved it as their job is to side with the government in all situations. Their approval is political, not technical. 

As Pakistan heads into fiscal year 2025–26, the federal government has rolled out an ambitious and tightly managed budget. Aiming to power up growth while maintaining fiscal discipline amid geopolitical tremors, the plan reflects both optimism and restraint. But as analysts warn of overly rosy targets, let's have a brief look at the highlights, challenges, and broader implications.

It has been projected repeatedly all budget figures were locked with the International Monetary Fund (IMF).

Big Goal: Growth Reboot

 GDP growth target set at 4.2%, up from the projected 2.7% in 2024–25. The ambition is to shift from a consumption‑led economy to an investment‑driven model, inspired by “East Asia’s development path”. Domestic investment suffered badly due to high interest rates due to which people preferred to keep money in the bank rather than investing in business. The other important factor was the government policies which discouraged investment in businesses and in real estate. As is common knowledge, businesses actually closed at an alarming rate or were shifted out of country

Reality Check

Past performance casts doubts. Agriculture and large-scale manufacturing are underwhelming, and external shocks continue to threaten stability. Experts like Oxford Economics suggest a 4.2% target may be overly optimistic.

Fiscal Tightening: Revenue & Deficit Goals

Revenue collections are projected to jump over 14%, driven by new taxes and measures to widen the tax base—now including agriculture, retail, and real estate.

The fiscal deficit target is 4.8% of GDP, improving from 5.9%.

Government outlay trimmed by 7%, totaling 17.57 trillion rupees, slightly down from 18.6 trillion rupees. The government has committed to strict spending controls and efforts to mobilize domestic revenue to keep borrowing in check. 

Revenue Targets and Tax Collection

FBR Target:

Total tax revenue target: Rs. 14.13 trillion

o Direct taxes: 6.9 trillion

o Indirect taxes: 7.23 trillion

Non-tax revenue: 5.17 trillion – major sources include petroleum levies, gas surcharges, and state bank profit transfers.

These goals hinge largely on boosting income tax filers (only 1.3% of the population in 2024) and raising non‑tax revenues—both historically elusive. 

While the government did not announce any major new taxes in the 2025 budget, it has emphasized increased enforcement, especially through:

Digital invoicing systems

AI-based tax audits

Tracking of large transactions

E-commerce monitoring

This reflects the broader goal of raising the tax-to-GDP ratio, currently under 9%, with a medium-term target of 10% or more.

Defence Gets Priority

Despite overall cuts, defense spending rises 20%, amounting to approximately 2.55 trillion rupees, or 2.5% of GDP. Justified by recent border conflicts with India, higher defense costs coexist with reduced subsidies and interest obligations.

This surge may crowd out critical spending on health, education, and climate resilience raising concerns among social welfare advocates.

Economic and Structural Reforms

Customs duties on raw materials cut to boost export competitiveness.

Privatization efforts resumed, taxes extended to traditional sectors, and subsidy cuts aim to create fiscal space. The program aligns with the US$7 billion IMF-backed reform agenda.

Skepticism Remains. Past IMF agreements have yielded mixed results, with weak tax collection and low non‑filing rates. Analysts caution that structural inertia may blunt reform impact.

Spending Breakdown: Winners & Losers

Defence: Up 20% to approximately 2.55 trillion rupees.

Debt servicing: Burden eased by rate cuts, providing some fiscal relief.

Education & health: Prone to cuts as reallocations favor defense and export-oriented reforms, though details remain tentative.

Energy sector: Customs and duties realigned to support industrial competitiveness.

Uncertain Development Spending – with the overall budget down 7%, it's unclear how much will go to infrastructure, health, and social programs without further data.

Political Context & Investor Confidence

Political stability under military influence is cited as a factor reducing unrest, encouraging investor appetite. The government frames this as Pakistan’s “East Asia moment”, signaling an economic pivot backed by sound policies. However, aggressive defense spending and unvalidated growth targets could unsettle confidence.

Key Risks to Watch

Missed Revenue Targets – Weak tax base and enforcement gaps may derail ambitious collection goals.

Geopolitical Spillovers – Any military tension could destabilize domestic priorities.

Neglect of Social Sectors – Public dissatisfaction could mount if education, health, and climate remain underfunded.

Implementation Risk – Reform fatigue and bureaucratic bottlenecks may prevent real change.

Why This Budget Still Matters

 It signals a strategic shift—from consumption-led growth to investment and exports.

 It reflects IMF and investor expectations, steering Pakistan away from repeated bailouts.

 It sharpens national priorities amidst regional tension and emerging global pressures.

Sum Up

Pakistan's 2025–26 budget represents a balancing act: ambitious growth, tight fiscal management, and defense readiness. Its strengths lie in targeted reforms and revenue optimism; its vulnerabilities, in execution risks and potential crowding out of development priorities.

If government can deliver on reform commitments, improve tax administration, and stabilize security, the 4.2% growth goal could be within reach. If not, the budget may ratchet up socioeconomic pressures and stall reform momentum.

Concluded.

Disclaimers: Pictures in these blogs are taken from free resources at Pexels, Pixabay, Unsplash, and Google. Credit is given where available. If a copyright claim is lodged, we shall remove the picture with appropriate regrets.

For most blogs, I research from several sources which are open to public. Their links are mentioned under references. There is no intent to infringe upon anyone’s copyrights. If, any claim is lodged, it will be acknowledged and recognized duly.

Comments

Popular posts from this blog

Personality Assessment Using AI – Asrar Qureshi’s Blog Post 1046

Generations at Work - Overview – Asrar Qureshi’s Blog Post #1006

Corporate Values; Beyond Words – Asrar Qureshi’s Blog Post #1072