News Desk
ISLAMABAD, Pakistan — In a raucous session of the National Assembly on Tuesday, Finance Minister Muhammad Aurangzeb unveiled Pakistan’s budget for the 2025-26 fiscal year, projecting a total outlay of 17.573 trillion rupees ($63 billion) and an ambitious economic growth target of 4.2 percent. Describing the moment as “historic” amid heightened tensions with India, Aurangzeb framed the budget as a bulwark for financial security, akin to safeguarding national sovereignty. Yet, economists and analysts, while noting some prudent measures, largely criticized the budget as a missed opportunity for bold structural reforms, constrained by the imperatives of an impending International Monetary Fund (IMF) program.
The budget reflects a cautious approach, prioritizing fiscal discipline over economic stimulus. The government aims to reduce the budget deficit from 5.6 percent of GDP in 2024-25 to 3.9 percent in 2025-26, while targeting a primary surplus of 2.4 percent, up from 2.2 percent. This fiscal consolidation, coupled with a projected 19 percent increase in tax revenues, signals a continuation of austerity measures that have defined Pakistan’s economic policy under IMF oversight.
Economist Adil Nakhoda described the reduced outlay for the current fiscal year as an “anomaly,” driven by lower interest payments as the government’s debt-to-GDP ratio declines. Ali Hasanain, an associate professor at Lahore University of Management Sciences, noted that the budget achieves a primary surplus and reduces the debt burden, a positive step toward stabilization. However, he cautioned that these gains stem more from accounting discipline—slashing development spending and subsidies—than from meaningful structural changes.
The budget introduces measures to simplify taxation and broaden the revenue base, including eliminating the non-filer category and streamlining tax filing processes. Macroeconomist Sajid Amin Javed praised these steps, noting that they could ease the burden on ordinary taxpayers. However, he criticized the absence of aggressive efforts to bring under-taxed sectors like wholesale, retail, and agriculture into the tax net. “This is a budget designed to meet IMF revenue targets, not to transform the economy,” Javed said.
Senior journalist Afshan Subohi echoed this sentiment, arguing that the budget fails to address the imbalance between direct and indirect taxes, which disproportionately burden the poor. A hike in the Petroleum Development Levy from 70 to 100 rupees is likely to offset modest tax relief for the middle class, such as a 2 to 4 percent reduction in income tax for salaried individuals. Subohi also questioned the government’s transparency, pointing to the selective disclosure of spending increases, particularly the defense budget’s allocation of 2.55 trillion rupees, which omitted the percentage rise over last year.
One of the budget’s more promising aspects is its tariff rationalization plan, which aims to phase out customs duties over the next four to five years. Javed described this as a signal of economic openness, encouraging industries to modernize. However, Nakhoda warned that the success of these cuts depends on avoiding replacement measures like anti-dumping or countervailing duties, which could undermine transparency.
Yet, the budget’s approach to certain sectors raises concerns. Hasanain criticized the reduced tax bill for real estate, arguing that it encourages speculative investments and contradicts advice from the IMF and World Bank. Similarly, Pakistan’s long-standing protection of industries like auto and mobile manufacturing, through high tariffs on finished goods and low tariffs on raw materials, has failed to boost exports or global competitiveness, he said.
The budget’s spending priorities drew sharp criticism. Development spending, which constitutes a significant portion of the budget, allocates 30 percent to transport infrastructure but only 5 to 6 percent to education, reflecting what Hasanain called “distorted priorities.” Political economist Uzair Younus described the budget as “unremarkable,” suggesting that its restraint, while necessary, squanders an opportunity to signal a strategic shift. “The government could have leveraged this moment to chart a new course,” he said.
Dr. Mohammad Ahmed Zubair, a former chief economist at the Planning Commission, was more scathing, calling the budget “fiscal handcuffing” driven by debt obligations rather than economic realities. With Pakistan grappling with low growth, rising unemployment, and shrinking consumer demand, Zubair argued that the government’s austerity measures are “tone-deaf” at a time when stimulus is needed. “This is not economic strategy; it’s dysfunction in disguise,” he said.
The budget’s focus on fiscal discipline aligns with Pakistan’s need to secure an IMF tranche, but its failure to address structural flaws risks perpetuating a cycle of low growth and inequality. Subohi noted that measures like a 10 percent salary increase for civil servants benefit only a small fraction of the population, while broader issues, such as raising the investment-to-GDP ratio, remain unaddressed. The budget’s modest incentives, including a 0.5 percent reduction in the super tax, are unlikely to spur significant wealth creation or job growth.
As Pakistan navigates a precarious economic landscape, the 2025-26 budget reflects a government caught between external pressures and domestic constraints. While it achieves incremental gains in fiscal consolidation and tax simplification, it falls short of the bold reforms needed to break free from stagnation. For a nation aspiring to prosperity, as Aurangzeb proclaimed, the path forward requires more than stabilization—it demands a vision for transformation that this budget does not yet deliver.
