As the government tabled the federal budget for FY2025–26 on June 10, it did so against a backdrop of cautious optimism. The Pakistan Economic Survey 2024–25 painted a picture of an economy clawing its way back from the brink, supported by record-low inflation, fiscal discipline, and a current account surplus.

Budget 2025–26 now attempts to build on that fragile stability, setting an ambitious fiscal trajectory while contending with the deep structural limitations of Pakistan’s public finance system.

The federal budget for FY2025–26 has been set at Rs 17.57 trillion, marking a 7 percent decline from the revised figures of the outgoing year. Of this, Rs 16.28 trillion is allocated to current expenditures and Rs 1 trillion to the Public Sector Development Programme (PSDP).

Interest payments alone are projected at Rs 8.21 trillion, while defence expenditure has been increased to Rs 2.55 trillion. The government expects a fiscal deficit of 3.9 percent of GDP and a primary surplus of 2.4 percent, in line with IMF expectations for fiscal consolidation.

The Economic Survey confirms that GDP grew by 2.68 percent in FY2024–25, driven by 3.42 percent growth in industry and 3.8 percent in services. Inflation, previously a key destabilizer, fell to an average of 4.7 percent between July and April FY25, down from 26 percent a year earlier.

The current account recorded a US$1.9 billion surplus, thanks to a 31 percent increase in remittances (to US$31.2 billion) and a 6.4 percent rise in exports. Foreign reserves stood at US$16.6 billion as of April. However, growth in agriculture stagnated at 0.56 percent,........

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