Dr. Ikramul Haq & Abdul Rauf Shakoori
The federal budget of Pakistan for the fiscal year (FY) 2025–26 is scheduled to be presented on June 10, 2025, following the release of Pakistan Economic Survey 2024–25 on June 9, 2025. The presentation of the national budget is not only a legislative requirement but also a critical economic milestone, especially in the context of Pakistan’s current financial obligations, macroeconomic stability efforts, and the broader Extended Fund Facility (EFF) arrangement agreed with the International Monetary Fund (IMF).
The Budget 2025 improvements have added significance given the substantial shift in fiscal direction needed by both domestic and global pressures. The government is expected to announce a total expenditure outlay of Rs. 16.9 trillion, marking a significant 10.6% or Rs. 2 trillion reduction from the original budgeted amount of Rs. 18.9 trillion in the previous fiscal year.
The reduction in projected expenditure reflects a marked improvement in the government’s fiscal discipline and is a result of substantial decline in markup payments on public debt. The anticipated cut in debt servicing costs from budgeted Rs. 9.8 trillion to Rs. 8.5 trillion is largely due to the halving of the central bank’s benchmark interest rate from 22% in June of the FY 2023-24 to 11% currently. The move is widely interpreted as a strategic reprioritization from interest-heavy fiscal architecture to a more development-oriented financial framework.
The estimated budget deficit for FY 2025–26 is expected to hover around Rs. 6.2 trillion, representing approximately 5.1% of the gross domestic product. The fiscal calculations incorporate projected provincial transfers of Rs. 8.04 trillion and a provincial budget surplus of Rs. 950 billion.
The anticipated gross revenue stands at Rs. 17.8 trillion, which will be complemented by an ambitious target for Federal Board of Revenue (FBR) at Rs. 14.3 trillion. The government appears poised to achieve these revenue targets through a combination of removing tax exemptions, imposing new levies, and enforcing compliance.
The reduction in government expenditure brings mixed implications. The benefits include fiscal consolidation, reduction in borrowing needs, and stabilization of sovereign debt indicators. The efficient allocation of resources may allow for targeted relief measures and public investments in priority sectors.
However, the contraction in outlays could also be criticized for potentially stifling public sector employment, limiting development expenditure, and constraining economic stimulus at a time when private sector confidence is still recovering from prolonged economic instability. The balance between austerity and development is therefore delicate and demands nuanced execution.
The government’s commitment to offering relief to the salaried class is one of the anticipated bright spots of the 2025 Budget. Proposals include the reduction of super tax rates, lowering of income tax brackets for middle-income earners, and rationalization of personal tax burdens. The intent is to augment the disposable income of wage earners without sacrificing revenue collection goals. The government is reportedly considering indexing tax slabs to inflation, which would offer structural relief and help cushion the impact of rising cost of living. The salaried segment, long burdened by fiscal imbalance and insufficient indexation, stands to benefit significantly if these measures are implemented comprehensively.
The Budget 2025 is also expected to introduce revenue-generating measures including the imposition of a 3% goods and services tax on petroleum products, expansion of the income tax net to include retailers and wholesalers, and the withdrawal of exemptions for the Federally and Provincially Administered Tribal Areas. The new tax measures, estimated to yield Rs. 869 billion, are aimed at boosting the FBR’s tax-to-GDP ratio from 10.3% to 11.3%. The broader policy approach reflects IMF recommendations that emphasize tax base broadening, compliance enhancement, and curbing administrative leakages.
The budgetary process is occurring within the framework of the IMF’s EFF and Resilience and Sustainability Facility (RSF), which imposes a series of macroeconomic, fiscal, and structural conditions. The IMF has laid down eleven structural benchmarks, including parliamentary approval of a fiscal year 2026 budget consistent with the programme’s targets, implementation of agricultural income tax laws, publication of a governance action plan, and inflation adjustment of the Kafaalat unconditional cash transfer programme. Additional reforms are required in the monetary and energy sectors, such as tariff adjustments to reflect cost recovery, and legislative moves to institutionalize levies and remove pricing caps.
The authorities have agreed to achieve a primary fiscal surplus of 1.6% of GDP in FY 2026. The IMF’s recent review, led by Nathan Porter, reaffirmed that Pakistan had met all targets and confirmed the disbursement of additional funds. However, the fund emphasized that any deviation from the agreed reform path could endanger future reviews. The structural conditions—such as those ensuring zero borrowing from the central bank, maintaining independent monetary policy, and improving reserve buffers—are deemed critical for long-term financial sustainability.
The defence allocation is also likely to remain a vital component of the FY 2025–26 budget. The recent escalation in geopolitical tensions, particularly the skirmishes with India, and the regional security situation required robust defence system. The budget is expected to protect or even expand allocations for defence spending to maintain operational readiness, modernize equipment, and reinforce strategic deterrence. The defence of territorial integrity and maintenance of internal security continue to be essential preconditions for economic stability and investor confidence.
The importance of maintaining balance between civilian and military expenditures will be closely watched. Excessive defence allocations at the cost of developmental spending or social protection could invite criticism and affect public sentiment. However, given the volatile regional environment and the size of the competing military budgets in neighbouring countries, Pakistan’s defence spending remains a matter of national necessity rather than discretionary choice.
The reduction in non-tax revenues, particularly from declining State Bank profits which are expected to fall to Rs. 1.5 trillion, presents another challenge. The loss in this category is compounded by the forecasted decline in petroleum levy collections, projected at Rs. 1.4 trillion. The budget will therefore be tested on its ability to make up for these shortfalls through sustainable, non-distortive taxation and improvements in administrative efficiency.
The Public Sector Development Programme (PSDP) is forecasted to receive an allocation of Rs. 1.1 trillion, reflecting continued commitment to infrastructure development despite fiscal tightening. The prioritization of high-impact, quick-disbursal projects in energy, transport, and digital infrastructure will be key to maximizing output multipliers. The quality and governance of public development projects remain a concern, and institutional reforms in procurement, monitoring, and execution are indispensable for translating budgetary allocations into tangible development outcomes.
The IMF has also insisted on reforms in the energy sector, including annual rebasing of electricity and gas tariffs, and legal amendments to make captive power levies permanent. These changes are expected to reduce the fiscal burden from subsidies, resolve the circular debt crisis, and restore financial viability in the power sector. The long-term goal is to make energy pricing reflective of actual costs while protecting vulnerable households through targeted subsidies. The implementation of these reforms, while economically prudent, will require a strong political mandate and public communication strategy.
The macroeconomic assumptions underpinning the budget forecast economic growth at 3.6%, inflation at 6.3%, and a current account deficit of US$ 1.5 billion. These projections are built upon expectations of policy continuity, exchange rate flexibility, and stable external financing. The IMF has urged the government to allow the exchange rate to float freely, rebuild foreign exchange reserves, and avoid central bank monetization of the fiscal deficit. The continuation of these macroeconomic policies is vital to ensure external sustainability and resilience against global economic shocks.
The budget’s alignment with IMF guidelines and commitment to structural reforms is expected to reassure international markets, lending institutions, and investors. The absence of tax amnesty, adherence to tight monetary policy, and resolution of outstanding liabilities reflect a maturing approach to fiscal governance. However, the challenge remains in translating this macro-level credibility into on-ground improvements in public service delivery, economic opportunity, and social mobility.
The government must also address the rising demands of the social sector. Investment in education, healthcare, and climate resilience must not be sidelined in the name of fiscal prudence. A well-targeted subsidy programme, reform of state-owned enterprises, and digitization of social welfare mechanisms can deliver efficiency and equity simultaneously. The federal budget must strike a careful balance between austerity and equity, growth and inclusion, consolidation and stimulus. The forthcoming budget holds the potential to become a turning point in Pakistan’s economic story. The challenge is not just to meet numerical targets but to chart a trajectory of inclusive and resilient growth.
The fiscal choices made on June 10, 2025, will reverberate across sectors, classes, and provinces. The clarity of vision, discipline of implementation, and consistency of reform will determine whether this budget becomes a stabilizing force or another short-term adjustment.
The path ahead demands political stability and consensus, institutional integrity, and public trust. The economic fundamentals must be strengthened without compromising the social contract. The budget of FY 2025–26 must not only respond to the imperatives of debt and deficits but also ignite the hope of national renewal. The credibility of the economic narrative, the confidence of the public, and the cohesion of fiscal strategy will together define the success of Pakistan’s next financial phase.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law.
He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
X (formerly Twitter): Adbul Rauf Shakoori
The recent publication, coauthored by these writes with Huzaima Bukhari is
Pakistan Tackling FATF: Challenges & Solutions, available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46