Pakistan’s government is preparing to unveil a postponed budget that places much of the near-term adjustment burden on salaried workers and registered firms while preserving support for the poorest households. Finance Minister Muhammad Aurangzeb will submit a 17.1-trillion-rupee ($61-billion) spending plan for the fiscal year that begins next month, according to wide domestic reporting.
The package comes as Islamabad faces pressure to meet austerity conditions attached to its latest International Monetary Fund programme. Officials intend to raise revenue and cut spending to satisfy those targets, even as they protect cash transfers and other measures aimed at the most vulnerable.
Analysts expect the impact to fall disproportionately on the formal sector - taxpayers, wage earners and firms operating within the regulatory system - because politically influential areas of the economy are difficult to tax. "The government’s hands are tied as it will once again prioritise fiscal consolidation over economic growth," said Mustafa Pasha, chief investment officer at Lakson Investments. "To achieve its targets, the government will have to crack down on non-filers, agriculture and traders. But the political will to materially expand rather than deepen the tax net is missing."
Policymakers must also navigate an external shock that has added to fiscal strain. The surge in global oil prices since the outbreak of the U.S.-Israeli war on Iran has pushed Pakistan’s inflation back into double digits, undermining a fragile recovery. "Pakistan is the most vulnerable major Asia-Pacific economy to a prolonged Middle East conflict, given its dependence on Gulf energy imports, remittances and financing support from the region," said Ahmad Mobeen, principal economist at S&P Global Market Intelligence.
The government is projecting stronger growth and lower inflation for the coming fiscal year than current outcomes would suggest. Authorities are aiming for economic growth of 4.1% in fiscal 2026-2027, up from a projected 3.7% for this year and above the IMF’s 3.5% forecast. The budget targets full-year inflation of 8.2%, substantially below the 11.7% inflation rate reported in May.
But several indicators point to continued strain for business and labour markets. Business confidence fell to its lowest level in May since S&P began its manufacturing survey last year. Input costs are at a 21-month high, and employment declined for a second consecutive month. Monetary policy has tightened as well: the central bank raised interest rates by one percentage point in April, its first increase in almost three years.
To meet revenue goals, the government is pressing the Federal Board of Revenue to boost next year’s tax collections by 37% above the target for the current year - a target that the FBR itself is expected to miss. The effort to increase collections confronts the reality of a large informal economy that places much of Pakistan’s cash outside the tax system. Only 1.3% of Pakistanis filed returns showing taxable income last year, and just 7.7% of adults hold a debit or credit card.
Corporate tax rates are already high by international standards, and raising income tax further would risk compressing consumer purchasing power that is still recovering from two years of inflation. "The remainder must come from new tax measures or tougher enforcement. These are usually the areas where the FBR slips up," said Mazhar Waseem, a public economics researcher at the London School of Economics.
Absent broader taxation of sectors such as agriculture, real estate and retail, fiscal consolidation may reduce the headline deficit but could widen the trust gap between citizens and the state, some analysts warn. "Without taxing agriculture, real estate and retail, the fiscal deficit may narrow, but the trust deficit between citizens and the state will widen," said Abid Suleri, executive director of the Sustainable Development Policy Institute.
Spending priorities are also being tightened. Planning Minister Ahsan Iqbal indicated that no new development projects will be launched in the coming year other than those related to defence and interior policies. At the same time, the budget is expected to preserve support for the poorest through cash transfer programmes.
The finance ministry has not publicly explained why the budget submission was delayed by one week. A government source told Reuters that the delay reflected efforts to resolve outstanding issues with the IMF, including terms on funds to be relinquished by provinces for federal spending.
The IMF has set a target for Pakistan to reach a budget surplus of 2%, excluding debt-service payments, for the coming fiscal year, according to a statement from the global lender last month. Observers note that IMF programmes often provide political cover for difficult policy choices. "Traditionally, IMF programmes have been used as political cover for unpopular measures," said Waseem. "This is unlikely to change."
Impacted sectors include the formal business sector, salaried workers, energy importers, and government development programmes. The formal tax base and consumer-facing sectors such as retail and housing are central to how fiscal objectives will be met or missed.
As Pakistan moves to implement the delayed budget, the interplay of higher global energy costs, tighter domestic monetary policy, and ambitious revenue targets will determine whether fiscal consolidation can be achieved without deepening economic pain for the middle class and registered businesses.