On June 10, 2025, Finance Minister Muhammad Aurangzeb presented the federal budget for FY2025–26 before a noisy National Assembly. It was passed on June 26 and signed into law on June 30. The government called it a budget for a “historic moment.” Critics called it more of the same. Both, in their own way, are right.

At its core, the budget targeted GDP growth of 4.2%, sought to bring inflation down to 7.5%, and aimed to reduce the fiscal deficit to 3.9% of GDP with a primary surplus of 2.4% projected for the third consecutive year. These are not unimpressive numbers on paper. The problem is what lies beneath them.

With a total outlay of Rs 17.573 trillion a deliberate 7% decrease from FY2024–25 the budget aligned squarely with IMF-mandated fiscal consolidation targets. Interest payments alone stood at Rs 8.207 trillion, with pensions adding another Rs 1.055 trillion, together dominating current expenditure. In plain terms, the government spent more on servicing its past than investing in its future.

Defence spending rose by 20% to Rs 2.55 trillion roughly 2.5% of GDP surpassing the entire Public Sector Development Programme allocation of Rs 1 trillion. This inversion where debt and defence crowd out development is not new to Pakistan’s fiscal architecture. What was troubling was the absence of any serious attempt to disrupt it.

The revenue side told a similarly constrained story. The Federal Board of Revenue was assigned a tax collection target of Rs 14.1 trillion, representing a 19% increase year-on-year, alongside a non-tax revenue target of Rs 5.1 trillion. Digitalization and AI-based audits were cited as enforcement tools welcome innovations, but no substitute for the political will to tax agriculture and the informal economy, sectors that have evaded the net for decades.

Former Planning Commission chief economist Dr. Mohammad Ahmed Zubair put it bluntly: after stagflation in FY23 and FY24 and stagnation in FY25 marked by low growth, cooling inflation, rising unemployment, and shrinking consumer demand any rational policymaker would reach for stimulus. Instead, the government doubled down on fiscal austerity.

Analysts noted that fiscal space for productivity priorities, particularly education and health, remained critically limited. A nation that allocates more to debt servicing than to human development is not stabilising it is postponing its reckoning.

FY2026–27: More of the Same, Under Heavier Skies

If FY2025–26 was a budget of constrained ambition, FY2026–27 arrives under even tighter constraints and with less room to manoeuvre.

The federal government has proposed a Rs 17.1 trillion budget for FY2026–27, setting a GDP growth target of 4.1%, an average inflation projection of 8.4%, and a tax revenue target of Rs 15.267 trillion. The numbers are almost a mirror image of the previous year marginally smaller in outlay, marginally more ambitious in revenue, and equally dependent on a fragile external environment to hold together.

The context is darker than the headline........

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