Pakistan government is anticipated to unveil a budget outlay of Rs16.9 trillion for the upcoming fiscal year 2025-26, suggesting a notable reduction of 10.6% or Rs2 trillion compared to Rs18.9 trillion originally budgeted for FY2024-25, according to a local research house report.
Arif Habib Limited’s (AHL) report titled ‘Pakistan Budget FY26 Preview – budget braces for balance’ anticipated a notable reduction in total expenditure (budget outlay) in the wake of a significant cut in mark-up payment on the debt.
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The markup payment on the existing debt is likely to reduce to Rs8.5 trillion in FY26, compared to Rs9.8 trillion originally budgeted for FY25.
“It would be a balanced and a better budget (compared to FY25) considering a significant reducing in cost of borrowing in the wake of halving of the central bank’s benchmark policy rate to 11% at present compared to 22% in the previous June,” AHL Head of Research Sana Tawfik said while talking to Business Recorder.
The government is scheduled to unveil the budget for FY2025-26 on June 10.
The reduction in the estimated expenditures would allow the government to shift its “focus on fiscal discipline and reforms to stabilise the economy while offering targeted relief,” the report said.
The AHL report estimated the overall budget would carry a fiscal deficit of Rs6.2 trillion, while collection of revenue (including non-tax revenue) totaling at Rs17.8 trillion in FY26.
The budget deficit is calculated through subtracting provincial transfers estimated at Rs8.04 trillion and estimated provincial budget surplus at Rs950 billion from the gross revenue at Rs17.8 trillion for FY26.
Tawfik added “the other notable measures to be taken to balance the budget would be including tax relieves such as reduction in rate of super tax, rates of income tax for salaried class people, and rationalisation of tax rates on other heads”.
The AHL anticipated numbers for the upcoming budget slightly differed with the ones reported in the media citing official sources in recent times. The research house said it projected numbers for the upcoming budget considering lower collection of revenue by the Federal Board of Revenue (FBR) at Rs11.83 trillion in the outgoing fiscal year 2024-25 compared to the one targeted (revised one) by the government at Rs12.37 trillion for the year.
AHL report anticipated the markup payment on the existing debt would reduce to Rs8.5 trillion in FY26.
The report said the government budgeted collection of revenue by the FBR at Rs14.3 trillion for FY26. The estimated number is based on the likely “measures including GST [goods and services tax] on petroleum products, tax on retailers and wholesalers, and withdrawing exemptions.”
“The FBR tax to GDP ratio is projected at 11.3% in FY26 compared to 10.3% in FY25.”
The government has budgeted current expenditure at Rs 16.2 trillion in FY26 considering decline in markup payments due to a significant reduction in interest rates, according to the report.
It calculated the overall budget deficit at Rs6.5 trillion (or 5.1% of GDP).
“The drivers of increase the fiscal deficit would be including rise in current expenditure and decline in non-tax revenue (to Rs3.9 trillion) mainly due to projected reduction in SBP (State Bank of Pakistan) profits.”
The research house estimated federal development budget (PSDP/public sector development programme) at Rs1.1 trillion, collection of revenue in petroleum development levy (PDL) at Rs1.4 trillion and SBP profit at Rs1.5 trillion in FY26.
It forecasted new tax measures worth Rs869 billion in the budget for FY26 including income tax on retailers and wholesaler, imposition of GST at 3% on petroleum products, and removal of tax exemptions and duty for the Federally Administered Tribal Area (FATA) and the Provincially Administered Tribal Areas (PATA) region, according to the report.
“Budget aligned with IMF [International Monetary Fund] rules, no tax amnesties, resolution of circular debt, and a National Fiscal Pact devolving spending to provinces among other measures.”
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The report said the government projected economic growth at 3.6% in FY26 compared to estimated 2.68% in FY25. It anticipated average inflation reading would rise to 6.29% in FY26 from 4.63% in FY25, while current account deficit (CAD) to be recorded at $1.5 billion in the next fiscal year starting July 1, 2025 compared to a projected surplus of $1.6 billion in the outgoing fiscal year 2024-25.
“Govt is expected to broaden the tax base through the introduction of new regimes, adjustments in tax rates, and enhanced collection mechanisms. At the same time, the government will try to provide targeted relief to vulnerable segments of society.”
“The budget is likely neutral to positive for the stock market (Pakistan Stock Exchange) and overall economy,” the report said.
