Prime Minister Shehbaz Sharif has called the federal budget “people-friendly” and expressed the hope that it will push Pakistan towards an export-oriented economy. One may wish for those hopes to be realised. Yet the fiscal document tells a more constrained story. A budget with an outlay of Rs18.8 trillion, markup payments of Rs 8.045 trillion, current expenditure of Rs 17.495 trillion while being backed by first-ever provincial grants of over Rs1 trillion is not primarily a growth document. It is a debt-management document with selective relief attached.
The government is not wrong to cite signs of macroeconomic repair. The economy has reached a reported $452 billion, foreign exchange reserves have climbed above $17 billion from around $4 billion three years ago, and workers’ remittances touched $38 billion in the first 11 months of the outgoing fiscal year. Growth of 3.7 per cent, large-scale manufacturing expansion of 6.1 per cent and services-sector growth of 4.1 per cent are not insignificant. Still, unemployment rising to 7.1 per cent is a sobering reminder that stabilisation is not the same thing as broad-based recovery.
This does not mean the budget is without merit. The reduction in tax collection on export proceeds, the abolition of the salaried-class surcharge, relief across selected income slabs, the abolition of super tax for income up to Rs500 million and its reduction for higher incomes are not cosmetic. Nor is the shift towards faceless assessment, digital audit, banking-data integration and real-time reporting by large businesses unimportant.
But credibility will be judged by numbers, not announcements. The FBR has been assigned a Rs 15.264 trillion target. Much of that hope rests on tech-enabled but still untested collection methods. If the target is missed, the cost will not remain theoretical. Under the IMF programme, revenue slippage could force additional tax measures within the year.
This is where the reforms claim weakens. New revenue is expected to come from removing exemptions, stricter enforcement, fuel levies, settlement of tax cases and continued pressure on documented taxpayers.
The larger contradiction lies in the development budget. Only Rs529.8 billion of the original Rs1.01 trillion FY26 PSDP was utilised in the first 11 months, just 52.4 per cent of the allocation. Another Rs173 billion was cut from development spending to finance fuel subsidies after the Mideast conflict pushed up oil prices.
Fitch’s warning is, therefore, well placed. Pakistan may be targeting a 2 per cent primary surplus and a 3.6 per cent fiscal deficit, but persistent compression of capital expenditure can weaken medium-term growth, revenue mobilisation and debt dynamics. Therein lies the bigger trap:the state cuts future capacity to meet present targets and then finds revenue growth harder next year.
The problem is not simply one of higher or lower spending. It is the absence of a credible growth architecture. Sustainable growth needs more than relief lines. It needs higher agricultural productivity, stronger domestic industrial supply chains and less cash outside banks. *