Islamabad: Finance Minister Muhammad Aurangzeb presented the federal budget for fiscal year 2026–27 in the National Assembly, unveiling a total outlay of Rs18,771 billion with a strong focus on fiscal consolidation, tax reforms, social protection, and development spending. The budget comes at a time when Pakistan is navigating high debt servicing costs, external economic pressures, and ongoing efforts to stabilise growth while maintaining inflation control.
The financial plan outlines a mix of austerity in expenditure management and targeted relief measures for the salaried class, alongside incentives for exports, digital economy expansion, and infrastructure development. Lawmakers witnessed tense proceedings as the opposition staged protests during the budget presentation.
Budget Size, Key Targets and Fiscal Outlook
The federal budget sets total expenditure at Rs18.77 trillion, with debt servicing emerging as the largest component at Rs8.05 trillion. Net federal income has been estimated at Rs11.75 trillion, while the overall fiscal deficit is projected at 3.6 percent of GDP. Economic growth is targeted at 4 percent, and inflation is expected to average around 8.2 percent during the fiscal year.
Officials said the framework reflects continued pressure from debt obligations but also signals gradual macroeconomic stabilization supported by reforms in taxation and expenditure management.
Defence, Governance and Public Spending Priorities
The government has allocated Rs3 trillion for defence, reaffirming it as a top national priority amid regional security concerns. Civil administration expenses stand at Rs1.07 trillion, while pension liabilities are estimated at Rs1.169 trillion.
Significant allocations have also been made for subsidies and grants, which total Rs1.09 trillion, reflecting continued state support for essential services and vulnerable segments of society.
Relief for Salaried Class and Major Tax Adjustments
A central feature of the budget is targeted relief for salaried individuals through revised income tax slabs and reduction in tax rates across multiple income brackets. Annual incomes between Rs2.2 million and Rs7 million will see reduced tax rates ranging from 20 percent to 32 percent depending on the slab.
The government has also proposed a 7 percent increase in salaries and pensions, along with a 10 percent rise in minimum wage. In addition, the 9 percent surcharge on salaried individuals has been removed, while super tax relief has been introduced for selected income groups to ease the tax burden.
Development Programme and Infrastructure Spending
The Public Sector Development Programme (PSDP) has been set at Rs3,675 billion, including Rs1,000 billion for federal projects and Rs2,224 billion for provincial development. State-owned enterprises are expected to invest Rs451 billion.
Transport infrastructure remains a key focus, with Rs365 billion allocated to roads, railways and communications. Major projects include upgrades to the N-25 highway, construction of the M-6 motorway, and initial work on the ML-1 railway corridor. Additional investments are directed toward water, energy and urban development projects across the country.
Energy, Water Security and Climate-Linked Investment
The energy sector has received significant attention in the budget, with allocations for hydropower expansion, transmission upgrades and renewable energy projects. Over Rs50 billion has been earmarked for solar and wind initiatives, while Rs116 billion is allocated for the power sector under PSDP.
Water security projects have been allocated Rs103 billion, including funding for Diamer-Bhasha Dam, Mohmand Dam, Dasu Hydropower Project, and Karachi’s K-4 water scheme. Officials linked these investments to rising climate risks and flood-related economic losses.
Health and Education Sector Allocations
The health sector has been allocated Rs25.1 billion for development projects, including expansion of cancer treatment facilities, emergency care systems, and improved disease surveillance infrastructure. The government also announced removal of customs duties on raw materials for over 100 medicines to reduce production costs and improve affordability.
In education, Rs46 billion has been allocated for higher education, alongside Rs22 billion for Danish Schools and Rs7.9 billion for technical and vocational training under NAVTTC. Digital learning, AI-based education systems, and research networks are also part of the reform agenda.
Digital Economy, Tax Reforms and Business Incentives
The budget introduces major reforms aimed at expanding the digital and export economy. IT export incentives have been extended for three more years, while tax on export sectors has been reduced from 2 percent to 1.25 percent.
A withholding tax has been introduced on social media earnings, covering platforms such as YouTube, TikTok and Instagram. At the same time, taxes on crypto transactions have been significantly reduced to encourage formal financial activity.
Corporate tax has been reduced further to 27 percent, while super tax has been withdrawn for selected sectors. Property transaction taxes have also been reduced to stimulate construction activity and related industries.
Social Protection and Youth Support Initiatives
The Benazir Income Support Programme has been allocated Rs2,680 billion to support nearly 12 million families. The government also announced expanded youth-focused initiatives, including easy loan schemes and agricultural financing to promote entrepreneurship and employment opportunities.
Officials said these measures aim to strengthen social protection while encouraging financial inclusion and self-employment among young people.
Economic Direction and Government Outlook
The government described the budget as a balanced effort to manage fiscal constraints while promoting growth, investment and social relief. Emphasis has been placed on improving tax compliance, expanding exports, and supporting productive sectors of the economy.
Finance Minister Muhammad Aurangzeb said the reforms are designed to ensure long-term economic stability while providing immediate relief to salaried individuals and vulnerable groups.