The federal budget was expected to be unveiled this Friday, but reports now suggest that it may be postponed due to the government’s desire to first secure the passage of unspecified “important legislation.” The precise nature of this legislation remains unclear, as does the reason why measures deemed crucial for the next financial year are being introduced at such a late stage. While political and procedural questions will inevitably attract attention, they are unlikely to be the primary concern for ordinary citizens. For most Pakistanis, the central question is much simpler: will the upcoming budget provide relief from mounting economic hardships, or will it bring yet another round of taxes, levies and higher prices?
The economic backdrop against which the budget is being prepared offers little comfort. Inflation has once again returned to double digits, climbing to a 22-month high of 11.7 per cent in May. Much of this increase has been driven by rising fuel and transportation costs linked to instability in the Middle East, but for consumers the cause matters less than the effect. Household budgets are under strain, and every increase in the cost of fuel quickly translates into higher prices for food, transport and essential goods.
At the same time, concerns about the government’s fiscal position continue to grow. Reports indicate that the Federal Board of Revenue’s shortfall has widened to Rs868 billion during the first 11 months of fiscal year 2025-26, although officials insist that revenue targets remain achievable. Regardless of which assessment proves correct, the gap between expenditure needs and revenue collection remains a persistent challenge. It is this challenge that continues to shape Pakistan’s engagement with the International Monetary Fund and heavily influences budget-making decisions.
Predictably, the IMF has reportedly urged Pakistan to raise the standard General Sales Tax from 18 per cent to 19 per cent. Such a proposal may appear logical from a purely revenue-generating perspective, but it is unlikely to be welcomed by citizens already struggling with rising living costs. Indirect taxes such as the GST and the petroleum levy are easy to collect, but they disproportionately burden consumers and have become an increasingly unpopular method of addressing recurring fiscal deficits. More importantly, they do little to address the structural weaknesses that lie at the heart of Pakistan’s revenue problem.
The real solution lies elsewhere. Pakistan’s tax base remains narrow, with a relatively small segment of the economy bearing the bulk of the tax burden. Sustainable fiscal stability requires broadening that base, improving compliance and creating conditions that encourage investment, productivity and economic expansion. Without stronger growth and a wider pool of taxpayers, reliance on indirect taxation will continue to deepen public frustration while providing only temporary fiscal relief.
There are some indications that policymakers recognise this reality. The Annual Plan Coordination Committee has recommended a national development outlay of Rs4.7 trillion and proposed a macroeconomic framework targeting GDP growth of 4.0 per cent and inflation of 8.2 per cent in the next fiscal year. Employment is expected to increase by around two million jobs, while reports suggest that customs and regulatory duties may be reduced in selected sectors to stimulate industrial activity and investment.
Such proposals are encouraging on paper, particularly given the constraints imposed by the IMF programme. Development spending has already suffered significantly under fiscal tightening measures, with only Rs528 billion of the allocated Rs1 trillion reportedly utilised so far. Increased development spending, if implemented effectively, could support infrastructure, employment and broader economic activity. Similarly, measures aimed at boosting industry could help improve productivity and export competitiveness.
Yet there is reason for caution. Similar promises were made before previous budgets, and many of the same challenges remain unresolved today. Revenue collection continues to rely heavily on a limited tax base, investment remains below potential and inflationary pressures have returned after a period of relative stability. Some setbacks have been driven by external developments beyond the government’s control, including regional conflicts and fluctuations in global energy prices. Nevertheless, managing the economic consequences of such events is an essential responsibility of any government.
The growth target itself raises questions. With the economy expected to expand by around 3.7 per cent this fiscal year, achieving 4.0 per cent growth next year will require stronger investment, improved business confidence and greater policy consistency. That task becomes more difficult when interest rates remain elevated and when expectations persist that additional taxes may be introduced to satisfy fiscal requirements.
Ultimately, the challenge facing policymakers is not simply balancing the books but distributing the burden fairly. If further fiscal tightening proves unavoidable, the government must ensure that its costs are shared more broadly rather than falling disproportionately on consumers and salaried households. A budget that asks citizens to endure additional hardship without addressing structural inequities risks undermining both public confidence and economic recovery.
Shafaqna Pakistan
pakistan.shafaqna.com
Note: Shafaqna do not endorse the views expressed in the article
