A holding operation, not a growth budget fy2027
The federal budget for FY 2026-27 arrives at a moment of relative macroeconomic calm, but not yet economic confidence. Pakistan has moved away from the crisis conditions of 2022-23: inflation has eased, reserves have improved, and the current account deficit has been tamed. Yet the recovery remains fragile, dependent on external financing, fiscal discipline and implementation of the International Monetary Fund (IMF) programme. This is not a growth budget. It is a consolidation budget, designed to reassure lenders more than to re-energise the economy.
Under war clouds, revenues falter, debt costs increase
Pakistan’s fiscal crisis is no longer a warning; it is a lived reality. Recurrent expenditures continue to rise while federal revenues falter, leaving little room for development spending. Every year, the government accepts ambitious tax and non-tax revenue targets under IMF programmes, yet its administrative machinery repeatedly falls short of achieving them.
The cost of running the civil government (RoCG) has surged by nearly 80 percent, from Rs89.5 billion in Q1FY2022 to over Rs161 billion in Q1FY2026. During the first half of FY26, RoCG increased 12.3 percent to Rs380.6 billion and exceeded Rs629 billion in 9MFY26, up 12.57 percent year-on-year despite so-called austerity measures.
Employee-related expenses (ERE) reached Rs427 billion, rising nearly 10 percent due to salary and pay adjustments. The state’s consumption footprint continues to expand while the Ministry of Finance struggles with persistent tax and non-tax revenue shortfalls.
The federal government has failed to recover hundreds of billions of rupees in non-tax revenues, including over Rs400 billion from provinces. Outstanding recoveries include Rs417 billion under the Gas Infrastructure Development Cess (GIDC), Rs171 billion from the fertiliser sector, and Rs283 billion in provincial interest payments.
Despite these failures, the government is considering a non-tax revenue target of Rs5 trillion for FY27 to contain the fiscal deficit. The question is obvious: on what basis can such an ambitious target be achieved when the current fiscal year has already recorded massive shortfalls in the same revenue stream?
Where is money in budget
We are done with the annual ritual of crafting the numbers, attempting to prove economic growth yet adding to the numbers of poverty, debt and unemployment. It is called the Annual Budget, interestingly.
Another regular ritual takes place every few months. A delegation from the International Monetary Fund (IMF) arrives, greeted with the kind of anxious hospitality usually reserved for a stern landlord. Our economic managers scramble, briefcases bulging with spreadsheets, presenting a familiar spreadsheet of desperation.
It is a spectacular display of economic myopia. Pakistan’s fiscal struggle is not a tragedy of scarcity; it is a comedy of misdirection. We are a nation built on a foundation of untapped economic goldmines, yet we persist in squeezing water from a stone. While the formal sector, corporate entities and salaried professionals carry the crushing weight of national revenues, massive swaths of the economy remain in a state of blissful, tax-free anarchy.
Power shock revives solar, ev push
As tensions around the Strait of Hormuz fuel inflation and energy insecurity, Pakistan is once again confronting a familiar challenge: how to shield its economy from imported energy shocks.
“When petrol becomes expensive, everything becomes expensive,” said Jabbar Khan, a father of nine. According to the Pakistan Bureau of Statistics (PBS), Pakistan’s headline inflation clocked in at 11.7 percent on a year-on-year (YoY) basis in May 2026, the highest level since June 2024.
Govt to broaden tax net through compliance, not new taxes
Finance Minister Muhammad Aurangzeb on Friday said the government had not imposed any new taxes in the federal budget for FY2026-27 and would instead focus on broadening and deepening the tax net through improved compliance and enforcement measures.
The finance minister unveiled the Rs18.8 trillion budget for FY2026-27 and set an economic growth target of 4 percent earlier, while describing the budget as anchored in “stabilisation, reform and growth”.
Govt cuts taxes, ends surcharge for four salaried class income slabs
Finance Minister Muhammad Aurangzeb on Friday unveiled tax relief measures for four income slabs of salaried employees and announced the removal of the surcharge, following directives from Prime Minister Shehbaz Sharif, while presenting the 2026–27 Federal Budget in the National Assembly.
Speaking in the National Assembly, Aurangzeb said, “I am pleased to announce that under the prime minister’s guidance, our government will reduce tax rates for different income groups to ease the burden on employees.”
Internet shoppers rejoice
In a move aimed at promoting the documentation of the economy through formal financial channels, the government on Friday proposed a 90 percent reduction in withholding tax on international credit and debit card transactions in the federal budget for the next fiscal year, lowering the rate from 5 percent to 0.5 percent.
Presenting the federal budget for fiscal year 2026-27, Finance Minister Muhammad Aurangzeb announced the proposed cut, which would reduce the withholding tax rate on overseas transactions made through bank-issued credit and debit cards from 5 percent to 0.5 percent.
Federal excise duty introduced on imported vehicles
Finance Minister Muhammad Aurangzeb on Friday said that the government had decided to impose federal excise duty (FED) on imported vehicles while presenting the 2026–27 Federal Budget in the National Assembly.
During his budget speech, Aurangzeb said that sports utility vehicles with engine capacities between 2,000cc and 3,000cc would now be subject to FED.