Pakistan has unveiled a Rs18.77 trillion ($67.49 billion) federal budget for fiscal year 2026-27, combining tax relief measures, higher defense spending and ambitious revenue targets as the government seeks to sustain an IMF-backed economic recovery while pushing for faster growth.
Presenting the budget in parliament on June 13, Finance Minister Muhammad Aurangzeb said Pakistan had moved beyond a period of severe economic stress and was now positioned to pursue growth while maintaining fiscal discipline.
“Pakistan today stands at a point where, on the one hand, it has achieved economic stability and, on the other, the desire for growth has reawakened,” Aurangzeb said in his budget speech.
The government has set a 4% economic growth target and projected average inflation of 8.2% for the fiscal year beginning in July. The budget has been prepared under the framework of Pakistan’s ongoing $7 billion International Monetary Fund (IMF) program, which has helped stabilize the economy through fiscal reforms, tax measures and spending controls after the country narrowly avoided a balance-of-payments crisis.
Aurangzeb said the economy had endured multiple external shocks over the past year, including global trade uncertainty, devastating floods and conflict in the Middle East that increased oil prices and disrupted supply chains.
“All of these challenges tested Pakistan’s resilience,” Aurangzeb said. “And as far as I am concerned, we completely and correctly passed that test.” He added that the government had remained committed to what he described as a “journey from stabilization to growth.”
Revenue targets remain central to IMF commitments
The budget retains key fiscal targets agreed with the IMF, including a tax collection goal of Rs15.264 trillion, a primary surplus of 2% of GDP and an overall fiscal deficit target of 3.6% of GDP.
The government expects total revenue of Rs20.60 trillion next year, including Rs15.26 trillion in tax receipts and Rs5.34 trillion in non-tax revenue.
Despite recording a tax shortfall of around Rs1.15 trillion in the outgoing fiscal year, authorities are targeting a 17.6% increase in tax collection. Officials expect part of the increase to come from stronger enforcement and compliance measures, while the remainder is projected to result from economic growth and inflation.
Aurangzeb said the budget aimed to broaden compliance rather than increase the burden on existing taxpayers.
An arrangement agreed between the federal and provincial governments will effectively freeze the divisible pool used for revenue sharing at Rs13.35 trillion for three years, creating additional fiscal space for federal spending priorities.
According to the finance minister, the difference between the projected tax collection and the protected amount will be made available to the federal government through grants under Article 164 of the Constitution to meet what he described as strategic national requirements.
Tax relief for salaried class, businesses and real estate
The government announced a series of relief measures aimed at salaried workers, businesses and the property sector.
Income tax rates have been reduced for several salaried income brackets, while withholding tax on international transactions through bank credit and debit cards has been cut from 5% to 0.5%.
The budget also extends the final tax regime for information technology and freelance exporters for another three years.
For businesses, the government abolished the super tax on corporate incomes between Rs150 million and Rs500 million and reduced the rate for higher-income businesses, excluding banks, oil and gas exploration firms and fertilizer companies.
Taxes on property transactions and the construction sector have also been reduced in an effort to stimulate activity in industries linked to housing development, including cement, steel, glass and construction materials.
The government additionally withdrew taxes on sanitary pads and contraceptives.
Salaries, pensions and social spending increased
The budget proposes a 7% increase in salaries and pensions for government employees and a 10% increase in the minimum wage to Rs40,700 per month.
Social welfare allocations have also been expanded. Funding for the Benazir Income Support Programme has been increased by 17% to Rs838 billion, with coverage expected to reach 12 million families.
The government has also allocated Rs71 billion for the Prime Minister’s Apna Ghar housing initiative, which aims to provide low-cost housing finance through subsidized mortgages.
Where Pakistan’s Rs18.77 Trillion Budget Will Be Spent
Defense spending rises after regional tensions
Defense spending has been allocated Rs3 trillion for FY2026-27, an increase of about 18% from Rs2.55 trillion in the outgoing fiscal year.
The increase comes after last year’s military confrontation with India and amid broader regional security concerns.
“Defence budget has been increased sufficiently to make the country’s defence invincible in view of the uncertain regional situation,” Aurangzeb told parliament.
At the same time, development spending remains constrained as the government seeks to meet IMF fiscal targets and contain borrowing.
The federal Public Sector Development Programme has been maintained at Rs1 trillion, while development expenditure and net lending together account for only Rs1.276 trillion, or about 6.8% of the total budget.
Debt servicing remains the largest expense
Debt servicing continues to dominate federal spending.
The government has allocated Rs8.054 trillion for debt servicing in FY2026-27, equivalent to 42.9% of the total budget. Of this amount, Rs6.982 trillion has been earmarked for domestic debt obligations and Rs1.071 trillion for foreign debt payments.
Current expenditure is projected at Rs17.495 trillion, accounting for more than 93% of total federal spending.
Pakistan’s total public debt stood at Rs83.285 trillion at the end of March 2026, increasing by Rs2.767 trillion during the first nine months of FY2025-26.
The federal government expects to finance its budget deficit through a combination of domestic borrowing, external financing, public savings schemes and privatization proceeds.
New taxes and enforcement measures introduced
Alongside relief measures, the government has introduced new revenue-generating initiatives to support its ambitious tax targets.
The finance bill includes enforcement measures expected to generate Rs650 billion, along with new taxes and levies on several sectors.
Luxury imported electric vehicles valued between Rs20 million and Rs30 million will face a 30% federal excise duty, while vehicles priced above Rs30 million will face a 40% duty.
Higher taxes have also been imposed on large engine internal-combustion vehicles, while naphtha and solvent oil have been brought into the tax net.
The budget proposes new tax measures affecting traders, social media earnings and various service sectors, including logistics, transport, courier services, hotels and professional services.
Business community reaction
Business groups broadly welcomed the budget while expressing concerns over some targets and assumptions.
The Overseas Investors Chamber of Commerce and Industry (OICCI), representing multinational companies operating in Pakistan, said the budget reflected “restraint, some structural ambition, and meaningful forward movement in select areas.”
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) described the fiscal plan as a continuation of existing economic policy but raised concerns about ambitious revenue collection goals and reliance on petroleum-related revenues.
The budget document also warned that higher global oil prices could widen the fiscal deficit by 0.8% of GDP, underscoring Pakistan’s continued vulnerability to external shocks and instability in the Middle East.
The government has also identified technology as a future growth driver, announcing plans for a $1 billion National Artificial Intelligence Ecosystem Development Programme aimed at strengthening Pakistan’s position in the global digital economy.
Pakistan’s economy is estimated to have grown 3.7% in the outgoing fiscal year, according to the Economic Survey 2025-26 released on June 12, while inflation declined sharply from the multi-decade highs recorded during the country’s recent economic crisis. The government now hopes the new budget will help transition the economy from stabilization to sustained growth while keeping IMF-backed reforms firmly in place.