The fiscal deficit has fallen to 0.7 per cent of GDP in the first nine months of FY26, the first time below one per cent in the country’s history. The primary surplus is at 3.2 per cent of GDP, a record. Tax collection has grown 26 per cent in FY25 and is at 94 per cent of the FY26 target. Inflation has settled at 6.1 per cent for the nine months, and the policy rate has been halved from 22 per cent to 11.5 per cent. The current account has produced three consecutive monthly surpluses. Reserves are at a four-year high. It is in this backdrop that budget for FY-27 has been prepared. The choices being made point in the direction of private-sector-led growth, export expansion, sustained current account and fiscal balance, and the maintenance of single-digit inflation.
A reformist budget widens the tax base rather than squeezing the same payers harder. It shifts subsidies and protections away from incumbents that have stopped being productive and towards activities that produce export earnings, jobs and investment. It also follows through on structural commitments particularly in tariff policy, privatization and energy. On the first count, the indications from the Federal Cabinet are that a long-overdue taxation scheme for traders and retailers will be unveiled. Engagement with the trader and retailer community has been underway for months, with the stated objective of arriving at a mutually beneficial arrangement rather than a contested one. Whether the final design works will depend on calibration and enforcement, but the inclusion of the segment in the formal taxation net is the right direction. The salaried class, which has been the subject of legitimate complaint, is being treated differently in this budget cycle. Tax in the lower-income slabs has already been reduced in the preceding budget. On the second count, the EV and automobile sector measures expected in this budget signal a deliberate steering of the industrial base towards activities that will reduce import dependence and build export potential. The government has stated that priorities of electric vehicles and solar energy will be appropriately reflected in the budget. The corporate sector taxation is being formalized rather than escalated, with the objective of bringing more economic activity into the formal documented economy. On the third count, the structural reforms already underway have given this budget more headroom than its predecessors. The privatization of PIA, the implementation of the National Tariff Policy 2025-30, and the FBR digital transformation program are all delivering fiscal benefits that compound year on year. Each rupee saved on circular debt or recovered through digital invoicing is a rupee the budget does not need to find from elsewhere.
Based on IMF’s latest reviews and Pakistan’s staff-level agreement for FY27 budget, the structural reforms expected to show up in Budget 2026-27 are as under:
1. Fiscal discipline & budget approval
– Parliamentary approval of FY27 budget in line with IMF targets including an underlying primary surplus of 2% of GDP by end-June 2026.
– Rs17.1 trillion federal revenue target for FY27. FBR target set at Rs15.264 trillion.
– Rs430bn new budgetary measures, provinces to mobilize extra Rs430bn.
2. Tax & revenue administration reforms
– Broaden tax base, not raise rates – focus on agriculture, retail, real estate, IT and exports. FBR transformation plan with digital invoicing, production monitoring.
– Audit reforms by Aug 2026
– Phase out SEZ tax incentives by June 2027. Full phase-out for tech zones by 2035.
3. Energy & SOE reforms
– Semi-annual gas tariff, annual power tariff notifications as structural benchmarks.
4. Governance & procurement
– NAB reforms by Jan 2027
– PPRA rules amendment by Sep 2026
5. Social protection & climate
– BISP adjustments: Annual inflation + generosity adjustments to Kafaalat cash transfers by Jan 2027. Payment hiked to Rs18,000 from Rs14,500.
– Climate integration: Disaster risk financing framework, climate in budget/investment planning under RSF.
6. Investment & FX
– FX liberalization roadmap by SBP.
– Export Processing Zones have been banned from selling in domestic market from Sep 2025 to stop tax leakage.
The IMF is pushing “fiscal consolidation plus tax base expansion” rather than broad relief. Any tax relief like salaried class cuts or Super Tax reduction needs IMF sign-off and must be offset by equal revenue measures. PSDP is also shifting to “completion-first” with 70% for 3-year completable projects. What this budget can do is to consolidate the recovery into a growth platform. The next eight to ten years of Pakistan’s economic trajectory will be shaped less by any single budget than by whether the reform momentum is sustained. Budget 2026-27 is the document that has to keep that momentum going.