The government of Prime Minister Shabazz Sharif has unveiled its third federal budget on June 12, 2026, presenting it as a roadmap toward economic stability, fiscal consolidation, and sustainable growth. On paper, the budget reflects a continuation of reforms undertaken under the IMF-supported stabilization program. While the numbers appear encouraging, serious questions remain about whether the proposed measures are sufficient to revive economic activity, improve competitiveness, and address the structural weaknesses that continue to constrain Pakistan’s economy.
For FY27, the federal government has projected revenues of PKR20.6 trillion and expenditures of PKR27.6 trillion, including provincial transfers of PKR8.8 trillion. This translates into a federal fiscal deficit of PKR7.0 trillion, equivalent to 4.9% of GDP. The overall national fiscal deficit is projected at PKR5.2 trillion or 3.6% of GDP, assuming the provinces generate a surplus of PKR1.8 trillion.
The government has highlighted that the revised fiscal deficit for FY26 stands at 3.0% of GDP, the lowest level in more than two decades. This achievement reflects the fiscal discipline pursued over the past several years, during which the average fiscal deficit remained around 6.14% of GDP. Similarly, the government has maintained a primary surplus target of 2.0% of GDP for FY27, following an estimated primary surplus of 2.5% for FY26. If achieved, this would mark the fourth consecutive year of primary surpluses, a rare occurrence in Pakistan’s recent economic history.
While these indicators deserve recognition, fiscal consolidation alone cannot be considered a substitute for economic transformation. Pakistan’s challenge is not merely reducing deficits; it is generating sustainable growth, increasing productivity, and creating employment opportunities for a rapidly expanding population.
The Federal Board of Revenue (FBR) has been assigned a tax collection target of PKR15.26 trillion, representing an ambitious increase of 18% over the revised FY26 target. This would raise the tax-to-GDP ratio to nearly 11.8%. However, achieving this target may prove difficult. The budget contains relatively limited revenue-enhancing measures while simultaneously providing relief to selected sectors and taxpayers. Unless tax administration improves significantly and leakages are effectively controlled, the revenue target may remain difficult to achieve.
The government has projected non-tax revenues of PKR5.34 trillion, including petroleum development levy collections of PKR1.7 trillion and a State Bank dividend of PKR1.4 trillion. A notable feature is the inclusion of a PKR one trillion grant under Article 164 of the Constitution.
Critics may argue that relying heavily on non-recurring or extraordinary revenue sources does not address the fundamental issue of broadening the tax base and reducing dependence on indirect taxation.
On the expenditure side, debt servicing continues to dominate the fiscal landscape. Although interest expenses are projected to decline from previous peaks, they remain among the largest components of government spending. This reality highlights the heavy burden accumulated through decades of borrowing and limited fiscal space available for development initiatives.
Development spending through the federal and provincial Public Sector Development Programs (PSDP) has been allocated PKR3.675 trillion, equivalent to 2.6% of GDP. While this is slightly above the five-year average, it remains insufficient to meet Pakistan’s vast infrastructure, energy, water, education, and healthcare requirements. A country aspiring to achieve sustained growth rates above five percent must invest substantially more in productive sectors and human capital development.
The proposed defense allocation of PKR3.0 trillion reflects the country’s evolving security requirements and regional challenges. Nevertheless, policymakers must recognize that long-term national security is also closely linked to economic resilience, industrial development, technological advancement, and social stability.
The government has set a real GDP growth target of 4.0% for FY27 as compared to an estimated growth rate of 3.7% in FY26. Agriculture, industry, and services are projected to grow by 3.6%, 4.5%, and 4.2%, respectively. While these targets are achievable, they remain modest relative to Pakistan’s development needs. Growth at 4.0% may stabilize the economy, but it is unlikely to significantly reduce unemployment, poverty, or income inequality.
Similarly, the inflation target of 8.2% suggests that price pressures will remain a concern for households already struggling with reduced purchasing power.
The projected current account deficit of US$3.6 billion appears manageable, but continued reliance on imports, external financing, and remittance inflows leaves the economy vulnerable to external shocks.
The export target of US$32.9 billion, compared with imports of US$70 billion, once again underscores Pakistan’s persistent trade imbalance. The budget offers support to exporters and maintains incentives for the IT sector, but it stops short of introducing bold reforms capable of fundamentally altering the country’s export structure.
Financial markets are likely to welcome several budgetary measures, including reductions in super tax, continued incentives for the IT industry, support for exporters, and concessions for the real estate and housing sectors. These initiatives may boost investor confidence and generate a positive reaction from the Pakistan Stock Exchange.
However, the broader reality remains that this budget focuses primarily on maintaining macroeconomic stability rather than accelerating economic transformation. Fiscal discipline is necessary and commendable, but it is not sufficient.
Pakistan urgently requires deeper structural reforms in taxation, state-owned enterprises, energy pricing, industrial policy, export competitiveness, and governance. Without such reforms, the country may achieve stability, but sustainable prosperity will remain elusive.