- Rs1 trillion allocated for PSDP to drive infrastructure, energy, and social development projects
The Government of Pakistan has unveiled its much-anticipated Federal Budget for FY 2025-26, laying out a forward-looking and fiscally responsible roadmap aimed at steering the economy toward sustained growth, stabilizing inflation, and reinforcing public welfare.
With a GDP growth target of 4.2%, the budget reflects cautious optimism backed by targeted reforms and sectoral revitalization. The agriculture, industry, and services sectors are all expected to post healthy gains of 4.5%, 4.3%, and 4%, respectively—signaling a broad-based recovery and increased economic momentum.
Smaller Outlay, Sharper Focus
The total budget outlay has been proposed at Rs17.6 trillion, a 7% reduction from the previous year, demonstrating the government’s commitment to prudent spending. This belt-tightening comes alongside ambitious revenue projections and a focus on reducing the fiscal deficit to 3.9% of GDP, while maintaining a primary surplus of 2.4%—both crucial for macroeconomic stability.
Revenue Mobilization and Reform
The Federal Board of Revenue (FBR) is projected to collect Rs14.13 trillion in taxes—an 18.7% increase from the outgoing fiscal year—while non-tax revenues are expected to reach Rs5.15 trillion. These targets are supported by a combination of administrative reforms and broadening of the tax base.
Several measures have been taken to provide relief and rationalization. Super tax rates have been slightly eased for large income slabs, while tax relief has been provided on immovable property transactions, helping stimulate activity in the real estate and construction sectors. Furthermore, the income tax burden for lower-income salaried classes has been reduced, with the lowest slab brought down from 5% to just 1%.
Public Development and Social Safety
The government has allocated Rs1 trillion for the Public Sector Development Programme (PSDP) to drive infrastructure, energy, and social development projects. In a major boost to social protection, the Benazir Income Support Programme (BISP) will receive Rs716 billion, a 21% increase, reflecting continued support for vulnerable segments of the population.
In education and innovation, Rs39.5 billion have been earmarked for the Higher Education Commission, and Rs4.8 billion for science and technology, underscoring a long-term vision for a knowledge-based economy.
Balanced Defence and Pension Spending
The defence budget has been set at Rs2.55 trillion, while Rs1.05 trillion will go toward pensions, ensuring that national security and obligations to retired personnel are maintained within a disciplined fiscal framework.
Energy and Environment Measures
Despite global cost pressures, Rs1.19 trillion in subsidies have been retained to cushion energy and essential service costs. At the same time, the government has introduced a Rs2.5/litre carbon tax on fuel products—a step toward climate-responsible fiscal planning. While an 18% tax on solar panels has been proposed, it may prompt further debate as the government looks to balance revenue needs with renewable energy goals.
Encouraging Market Stability
In a sign of consistency for capital markets, no changes have been proposed to the capital gains tax or dividend tax on stocks, offering investors a stable fiscal environment. Likewise, essential agricultural inputs like fertilizers and pesticides remain unaffected by additional federal duties.
With a clear focus on economic revival, social equity, and fiscal prudence, Pakistan’s FY2025-26 budget reflects a constructive step toward inclusive growth. As inflation is forecast to ease to 7.5%, and interest expenses decline, the macroeconomic outlook for the upcoming year appears cautiously promising—marking a step forward in the nation’s financial recovery and reform journey.