June 11, 2025
ISLAMABAD – In a rather noisy National Assembly session on Tuesday, Finance Minister Muhammad Aurangzeb presented the budget for the fiscal year 2025-2026, with a total outlay of Rs17.573 trillion and an ambitious 4.2 per cent growth target.
In his speech, Aurangzeb said the budget was being presented at a “historic moment”, referring to the recent Pakistan-India escalation. He stressed the need for ensuring the country’s financial security in the same way that national sovereignty was protected.
“Pakistan has now achieved economic stability and is moving towards a Pakistan that is prosperous,” he said.
Dawn.com reached out to leading economists and analysts for their key takeaways from the budget. Here’s what they had to say:
‘An anomaly’
Economist Adil Nakhoda noted that the government had reduced its outlay for the current fiscal year, which, according to him, was an anomaly. “This is likely due to the significant decline in interest payments as the government’s debt as a percentage of the gross domestic product has also declined,” he said.
He pointed out that the increase in defence expenditures was also anticipated.
“Tax collection is expected to increase. This should come via an increase in the size of the tax net rather than increasing the burden on those already in the tax net,” Nakhoda said.
He added that the main feature of the budget was the government’s plan to undertake tariff rationalisation. “Although tariff cuts have been announced, the important task is to ensure that they are not replaced with anti-dumping duties and countervailing duties to ensure better transparency in the process.”
‘Short of structural, bold reforms’
Highlighting the positive aspects of the budget, macroeconomist Sajid Amin Javed said the rationalisation of the tariff regime was a signal of opening the economy and pushing the industry to modernise and innovate. “Bringing the customs duties and other duties to zero in the next four to five years is a good policy direction.”
Tax simplification, he noted, was a very important aspect, as tax filing in Pakistan was complicated for layperson. “Another good thing is eliminating the non-filer category.”
On the flip side, Amin pointed out that on a strategic level, “this is exactly the budget that one can expect under the International Monetary Fund” — targeting stabilisation and meeting revenue targets.
“Most of the policy measures regarding taxation revolve around meeting revenue targets,” he said. “I feel this is a bid to correct the existing system in bits and pieces, but the bigger reforms that are often discussed, such as bringing wholesalers and retailers, and agriculture into the tax net, there wasn’t much said on it.”
The macroeconomist stressed that structural reforms, which were much needed to increase the tax base, were not seen. “Overall, it seems that the budget is silent on structural reforms. Even the relief, I feel, is as expected under the IMF programme.”
He also highlighted some contradictions in the budget. “On the other hand, we are saying we want to formalise the economy and increase financial inclusion, but we have increased taxes on withdrawing money from banks for non-filers from 0.6pc to 1pc, which I feel may discourage financial inclusion.”
“Overall, I feel the budget falls short on structural and bold reforms; it is a stabilisation budget formed to meet revenue targets. One more thing I am seeing is that the objective or principle guiding the budget is the incoming IMF tranche.
“There is no undue relief. There is an attempt to balance the fiscal discipline,” Amin added.
‘Rather unremarkable’
Political economist Uzair Younus believed that the budget was rather unremarkable, and that “perhaps may be the best thing about it”.
“This is because what is needed at this time is for the government to maintain an even keel and not give in to the historical tendency to generate growth through fiscal expansion,” he said.
“At the same time, however, the budgetary exercise could have been leveraged as an opportunity to signal a shift in strategy. For those left wanting reforms, perhaps the proposed trade and tariff rationalisation program will suffice in the coming months,” Younus added.
‘Misplaced priorities’
“There is some positive news: fiscal consolidation,” said Ali Hasanain, an associate professor of economics at LUMS. “We have reduced the budget deficit significantly, and we have run a primary budget surplus, which means that our expenditures for this year were less than the revenue.”
“Our debt profile will improve over time. I believe we have already seen better debt maturities in the past year, and we are going to see that the overall interest payments have gone down. Overall, the debt is moving towards stabilisation, and we are not in as bad a debt crisis as we were previously.”
He noted that the big changes seen could be thought of more as accounting discipline rather than structural reforms, “which means we have reduced expenses in development spending and cut subsidies”. While structural changes were missing, there was emphasis on discipline in spending, which Hasanain said was both good and bad.
“Thirdly, our development spending continues to look like it has distorted priorities. For example, 30pc of development spending is on transport and 5pc-6pc on education, which shows you are following an old development plan and your priorities are misplaced.”
Talking about the reduced tax bill for the real estate sector, he said it went against the grain of advice by most economists and international institutions such as the IMF and World Bank. “It encourages speculative investments, and it does not improve the external sector picture.”
Moreover, the national tariff policy saw some serious tariff reductions, Hasanain said. He explained that Pakistan, over the last decade, had substantially increased its protection of certain industries such as auto and mobile manufacturing. The raw material for these industries was imported on cheap tariffs, and the final good was imported on expensive tariffs. “This type of industry is a road to nowhere because it doesn’t make you globally competitive, nor does it increase exports.”
Commenting on the overall budget, he said that it was relatively disciplined but within the status quo and political constraints. “I think structural reforms and a serious reform agenda have not manifested. When that happens, change would be seen in several areas.
“If they actually want to transform the country, it should be done by rethinking how the country is governed,” he added.
‘Hard to discern any clear direction’
“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?” remarked senior journalist Afshan Subohi.
“If a modest 2pc-4pc reduction in income tax for salaried individuals or further trade liberalisation through reduced customs duties is being positioned as revolutionary or transformative, then, respectfully, it falls short of such claims,” she said.
Afshan was of the opinion that the 10pc salary increase for civil servants may be a welcome move for its recipients, but its impact was limited given the small proportion of the population it benefited.
“In his speech a few hours ago, the finance minister made no mention of under-taxed sectors such as wholesale, retail, or any commitment to ensure enforcement of agriculture income tax laws in provinces. While he did highlight the government’s intention to raise the tax-to-GDP ratio, he overlooked the critical issue of the imbalance between direct and indirect taxes,” she commented.
The journalist said that there was little to indicate any serious intent to make the tax regime more progressive by reducing reliance on indirect taxes, which disproportionally burdened poor consumers. “Whatever relief may have been offered to middle-class taxpayers is likely to be offset by the hike in Petroleum Development Levy, from Rs70 to Rs100, leading to significantly higher petrol prices.”
“How the budgetary measures will improve the investment climate and raise the critical investment to GDP ratio has been left for the investors to decipher. On the surface, aside from a 0.5pc reduction in the super tax and a few minor adjustments, there is little in the budget to meaningfully stimulate wealth creation or accelerate job growth,” she said.
Afshan criticised the finance minister’s speech, saying that it lacked a sense of transparency. “Beyond the numbers, it was hard to discern any clear direction.”
“While the announcement to simplify tax return forms and encourage digital filing is a welcome step, several elements were presented in a way that left audiences unclear about the substance. For instance, percentage increases were disclosed for many spending categories, but when it came to the defence budget, only the total allocation of Rs2,550bn was mentioned, conveniently omitting the percentage increase over last year.
“This selective disclosure raises questions about the government’s commitment to full transparency,” she added.
‘This is not economic strategy, it’s fiscal handcuffing’
“The FY26 budget is yet another disappointing example of policy driven more by debt obligations than by economic reality,” said Dr Mohammad Ahmed Zubair, former chief economist at the Planning Commission of Pakistan. “After grappling with stagflation in FY23 and FY24 — high inflation paired with weak growth — the economy has now slipped into outright stagnation in FY25: low growth, cooling inflation, rising unemployment, and shrinking consumer demand.” He added that any rational policymaker would see this as a moment for stimulus — spending boosts and tax relief to jumpstart growth.
“Instead, what we’re getting is a tone-deaf commitment to fiscal austerity. The government plans to slash the budget deficit from 5.6pc in FY25 to 3.9pc in FY26, and raise the primary surplus target from 2.2pc in FY25 to 2.4pc in FY26. That’s not reform — it’s retreat,” he lamented, adding that tax revenues were projected to rise a staggering 19pc, while current spending (excluding debt servicing) was targeted to rise by 8.5pc in FY26.
“Let’s be clear: this is not economic strategy, it’s fiscal handcuffing,” he said. “The debt servicing burden is dictating national priorities. Without a serious, coordinated fiscal compact — including debt restructuring and binding safeguards against future debt mismanagement — Pakistan will remain stuck in a vicious cycle of low growth, rising inequality, and deepening social pain.
“It’s time to stop pretending austerity is discipline; it’s dysfunction in disguise.”