Pakistan’s latest budget offers some targeted relief. Still, it essentially amounts to incremental tweaks rather than a bold strategy to reverse long-term economic decline, control inflation, create jobs, or reduce poverty. Minor adjustments provide limited breathing room for certain groups, yet the budget fails to address the most critical fiscal question: What is the government doing to reduce the debt burden?
Revenue Growth Misleading
Officials claim that tax revenues have more than doubled from Rs 6 trillion in 2021-22 to Rs 12.98 trillion in 2025-26. This is highly misleading. They have grown by just 25.5% over four years in real terms (adjusted for inflation), mainly through indirect taxes on consumption and utilities and by placing an additional burden on the corporate sector and the salaried class.
Federal Revenue Allocation
Most analysts focus on headline deficits and tax collections, but pay far less attention to how federal revenues are actually allocated. Net federal revenues—tax and non-tax revenues after transfers to provinces—rose from Rs 2.2 trillion in 2013-14 to Rs 10.8 trillion in 2024-25. In the same period, interest payments jumped from Rs 1.2 trillion to Rs 8.9 trillion. In 2023-24, interest alone swallowed more than the entire net federal revenue. The government had nothing left for development or meaningful public spending.
Debt Servicing Dominates
Pakistan’s latest budget once again chooses political expediency over real reform. It offers modest tax relief to salaried employees and some exporters, yet refuses to confront the single issue that has crippled federal finances for more than a decade: the crushing debt burden. Interest payments continue to eat up most of the budget.
The current budget projects a modest surplus after interest and defence costs. That surplus rests on the budgeted petroleum development levy of Rs 1.676 trillion and the projected profit of Rs 1.436 trillion from the State Bank of Pakistan, but not on any serious reduction in the debt itself. This is not fiscal management. It is bureaucratic jugglery that postpones the inevitable.
Provincial Transfers Decline
Net transfers to provinces (transfers minus surplus sent back to the federal government) have declined to just 34% of total federal revenues from 49% in 2018-19. The main issue is the debt, leaving aside the debate about how provinces have performed post the 18th amendment.
Subsidies and Tax Exemptions
The government provided subsidies of about Rs 2.35 trillion ($8.4 billion) last year to the rich and entitled. Tax exemptions exceed the entire federal development budget and are larger than Pakistan’s annual spending on health and education combined. In a single year, Pakistan gives away more in tax exemptions to protected sectors and privileged classes than it borrows from the IMF ($7 billion) over three years. While ordinary citizens face higher utility costs and new taxes, powerful lobbies retain their privileges through opaque mechanisms that rarely face proper scrutiny.
The budget tinkers with tax slabs and removes a few super taxes. These small adjustments are quickly neutralised by inflation and fresh revenue measures introduced elsewhere. There is no serious strategy to expand exports, raise productivity or generate sustainable jobs.
Debt Crisis at the Core
Pakistan’s fiscal crisis is, above all, a debt crisis. Nearly 85% of interest payments relate to domestic debt. The government can keep borrowing, but each new loan only deepens the trap. What is missing is a clear, time-bound plan to reduce the actual stock of debt and create genuine fiscal space. Without that plan, every future budget will remain a debt-servicing exercise dressed up as development policy.
The country cannot grow, cannot create jobs and cannot reduce poverty while interest payments continue to consume the bulk of available resources. This budget had an opportunity to break the cycle. Instead, it chose continuity over change.
It is easy to celebrate diplomatic wins. But they will count for little if the underlying economic model remains trapped in a revolving door of debt—borrowing to service old borrowing, rather than building the capacity to outgrow it. The real test is not external alignment but internal transformation: shifting from debt dependence to a growth model anchored in productivity, human capital, and technology. As long as a crushing debt burden continues to dominate fiscal space, that transition remains politically convenient to talk about—but economically impossible to deliver.
