Written by: Aina Minhas
Pakistan’s federal budget is not merely an annual statement of government revenues and expenditures; it also reflects the government’s economic priorities, policy direction, and vision for the country. The Federal Budget for the fiscal year 2025–26 was presented at a time when Pakistan was attempting to move towards economic stability while continuing to face serious challenges, including inflation, unemployment, high energy costs, mounting debt, and fiscal pressures. The government therefore faced a difficult task: maintaining fiscal discipline while also providing meaningful relief to the people. With a total outlay of Rs17,573 billion, the federal budget set the Federal Board of Revenue’s tax collection target at Rs14,131 billion. The government also aimed to contain the overall fiscal deficit at 3.9 percent of GDP and proposed various measures to broaden the tax base. The stated objective was to bring sectors with significant economic activity more effectively into the tax net. However, this raises an important question: who will ultimately bear the burden of higher taxation? One of Pakistan’s longstanding economic problems is that a relatively narrow segment of society carries a significant share of the tax burden, while several major sectors remain inadequately documented or taxed relative to their economic potential. If the government succeeds in broadening the tax base, it could strengthen the country’s fiscal position. However, if additional taxes continue to fall disproportionately on salaried individuals, existing taxpayers, and the middle class, economic pressure on these groups could intensify. The real success of tax reform, therefore, should not be measured simply by how much additional revenue is collected, but by whether the government can establish a broader and more equitable tax system in which different sectors contribute according to their capacity. The budget provides a 10 percent increase in salaries for government employees and a 7 percent increase in pensions. While this may provide some relief to government employees and pensioners, a large portion of Pakistan’s workforce is employed outside the public sector. Private-sector employees, daily-wage workers, small business owners, and millions of people working in the informal economy do not receive a comparable direct increase in income. The real test, therefore, is whether the economic benefits of the budget will extend beyond the public sector and reach the wider population. The energy sector remains another major challenge for the Pakistani economy. High electricity and gas prices affect household budgets while also increasing the cost of production for industry, agriculture, and businesses. Unless structural problems such as circular debt, transmission and distribution losses, electricity theft, and inefficiencies in the energy sector are addressed, simply increasing tariffs will not provide a sustainable solution. Economic stability requires reforms that improve the efficiency and sustainability of the energy sector, ensure reliable supplies for businesses and industries, and reduce unnecessary pressure on ordinary consumers. The budget allocates Rs2,550 billion for defence, making it one of the major components of federal expenditure. Given the country’s regional and internal security environment, defence requirements remain an important national consideration. At the same time, as with all areas of public expenditure, effective planning, efficient use of resources, and a balance among national priorities remain essential. Debt servicing is another major pressure on the federal budget. When a substantial portion of government revenue is consumed by debt repayments, fewer resources remain available for development projects, human capital, and public services. Social protection is another important component of the budget. The Benazir Income Support Programme has been allocated Rs716 billion to provide financial assistance to deserving families. Such support is important for vulnerable households, but social protection should go beyond cash assistance. It should also be linked with education, healthcare, skills development, and employment opportunities so that low-income families can gradually move towards self-reliance. Education and healthcare also need to be viewed in the context of Pakistan’s constitutional division of responsibilities. Following the 18th Constitutional Amendment, most responsibilities relating to education and health have been devolved to the provinces. Therefore, the overall performance of these sectors cannot be assessed by looking at the federal budget alone. A complete picture requires an assessment of both federal and provincial resources, development spending, and the effectiveness with which those resources are utilised. One of the important features of the budget is the government’s emphasis on controlling the fiscal deficit, increasing revenue, and maintaining fiscal discipline. However, setting targets and achieving them are two different things. Pakistan’s economic history contains many examples of ambitious revenue, deficit, and growth targets that were not fully achieved because of structural weaknesses and implementation challenges. This is why the success of the 2025–26 budget will ultimately depend less on the figures announced in the budget document and more on how effectively its policies are implemented. If the government succeeds in curbing tax evasion, expanding the tax base, reducing losses in state-owned enterprises, reforming the energy sector, increasing exports, and improving the business environment, higher revenues could contribute to long-term economic stability. On the other hand, if increasing revenue primarily means imposing additional taxes on existing taxpayers, it could further weaken purchasing power and place additional pressure on economic activity. Pakistan needs more than a balanced annual budget; it needs a long-term economic strategy capable of creating employment, encouraging private investment, increasing exports, and improving the purchasing power of ordinary citizens. An economy cannot achieve sustainable growth simply by borrowing to finance recurring expenditures. Long-term stability requires greater domestic production, stronger exports, a broader tax base, and investment in human resources. Ultimately, the federal budget should not be judged merely by the billions of rupees allocated to different sectors. Its real measure of success should be the change it brings to the lives of ordinary citizens. Have employment opportunities increased? Have electricity and gas bills become more manageable? Has the business environment improved? Have education and healthcare services become more accessible and effective? And has the state been able to protect vulnerable sections of society from economic hardship? Pakistan’s central challenge is to ensure that economic stability and public relief are not treated as competing objectives. A strong economy is one in which the government’s finances are under control while ordinary citizens also experience tangible improvements in their standard of living. The Federal Budget 2025–26 sets out a framework towards these objectives, but its real impact will depend on effective, transparent, and consistent implementation. If the government can translate budgetary figures into meaningful reforms, employment opportunities, higher production, and better public services, the budget could contribute to the country’s economic recovery. Otherwise, it risks remaining another collection of annual financial targets and policy promises rather than becoming a meaningful instrument of economic transformation.
