Pakistan’s Federal Budget 2025-26 A Five Year Comparative Analysis Key Highlights And Way Forward.

Pakistan’s Federal Budget 2025–26: A Five-Year Comparative Analysis, Key Highlights, and Way Forward

Introduction

The federal budget is not merely a financial document; it is a reflection of a government’s priorities, economic vision, and policy direction. Pakistan’s Federal Budget for the fiscal year 2025–26 has drawn considerable attention due to its ambitious tax targets, controlled expenditures, and commitments to fiscal consolidation. This article aims to analyze the current budget in comparison with the previous five years, evaluate its strengths and weaknesses, and offer practical recommendations for improvement.

Five-Year Budget Comparison (2020–2026)

Fiscal Year Total Expenditure (Rs Trillion) FBR Revenue Non-Tax Revenue Primary Balance (% of GDP) GDP Growth Target

2020–21 — 4.7 1.6 — —

2021–22 — 6.1 — — —

2022–23 11.09 7.2 1.6 0.5% —

2023–24 14.46 9.4 2.96 0.4% 3.5%

2024–25 18.9 12.97 4.8 — 3.6%

2025–26 17.6 (proposed) 14.13 5.15 2.4% (primary surplus) 4.2%

Key Trends and Highlights

1. Consistent Growth in Revenue: FBR revenue has nearly doubled from Rs 7.2 trillion in 2022–23 to a targeted Rs 14.13 trillion in 2025–26. Non-tax revenue has also shown a marked increase.

2. Expenditure Control: For the first time in recent years, total expenditure has seen a slight reduction from Rs 18.9 trillion in 2024–25 to Rs 17.6 trillion in 2025–26—a 7% decrease.

3. Defence Spending Increases: Defence allocations have risen by 20% to Rs 2.55 trillion, now accounting for 14.5% of total budget outlay.

4. Fiscal Discipline: With a projected 2.4% primary surplus, the government appears to be aligning with IMF conditions and international fiscal benchmarks.

5. Moderate Economic Growth Goals: The GDP growth target is set at 4.2%, a moderate but stable projection indicating cautious optimism.

Critical Observations

• Debt Servicing Dominates: Interest payments remain alarmingly high—over Rs 9 trillion—consuming more than half of the budget and leaving little fiscal room for development.

• Low Social Sector Spending: Despite claims of reform, allocations for health, education, agriculture, and environmental protection remain insufficient.

• High Tax Burden & Inflation Risks: While tax collection targets have increased, much of the burden falls on the middle class and consumption, raising fears of inflation and reduced purchasing power.

• Limited Structural Reforms: Despite announcements, there has been minimal progress in tariff reforms, state-owned enterprise restructuring, or privatization.

What Could Have Been Better?

1. Debt Reprofiling Strategy

The government should focus on refinancing high-interest domestic debt with long-term, concessional borrowing to reduce interest payments sustainably.

2. Increased Development Expenditure

Allocations to health, education, water management, and digital infrastructure should be increased to build long-term human capital and economic resilience.

3. Widening the Tax Base

Instead of burdening the already-taxed sectors, the government must bring agriculture, informal sectors, and digital commerce under the tax net—while simplifying compliance for SMEs.

4. Privatization of Loss-Making SOEs

Entities such as PIA, Pakistan Steel Mills, and WAPDA distribution companies should be restructured or privatized to reduce fiscal drain and improve service delivery.

5. Clear Execution Plan for Reforms

While the government has committed to a medium-term reform plan (2025–30), its success hinges on transparency, swift implementation, and regular monitoring.

Conclusion

The Federal Budget 2025–26 shows clear intent to pursue fiscal consolidation through revenue enhancement and controlled expenditures. However, heavy interest payments and underinvestment in human development remain key bottlenecks. If Pakistan is to break the cycle of debt and underdevelopment, it must prioritize structural reforms, broaden the tax base, and focus on people-centric growth.

This budget could lay the groundwork for a stronger economy—if followed by action, discipline, and inclusive policies.

Syed Ali Raza

World Peace Advocate

Mail:  QuaidePakistan@gmail.com

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