The Rs18.8 trillion Federal Budget for FY2026-27, unveiled in the National Assembly yesterday, reflects a distinctly forward-looking approach. With promises of a moderate tax regime, efforts have been made to ensure that pressure on businesses is eased. Yet, the budget mysteriously failed to spell out conventional allocations for education and health. There was no mention either of the agrarian and industrial outlook, or allocations for sectors like IT, AI, SMEs and automobiles.
Finance Minister's Economic Claims
The budget speech by Finance Minister Muhammad Aurangzeb painted a euphoric picture, claiming an economic turnaround – even though the country missed its growth target for the outgoing year. The preamble of the budget, however, praised the indispensability of defence, highlighting how the conventional war superiority over India in the four-day duel in May 2025, and subsequent diplomatic strides, placed Pakistan at the fulcrum of an emerging new world order. It carries a coded geopolitical message, hinting at Pakistan's deep reliance on global economy.
Key Indicators and Global Integration
Key indicators support this outlook: external remittances are projected to reach $41 billion for FY2026-27; the country has successfully returned to the international bond market after four years by raising $750 million through Eurobonds; Islamabad has made a strategic breakthrough in the Chinese capital market by securing over $500 million via Panda Bonds; and domestically, this global integration is mirrored on the local bourses, which witnessed a record influx of 173,000 new investors over the past year.
Major Allocations: Debt Servicing, Defence, and Subsidies
Meanwhile, a major share of Rs8,045 billion is set aside for debt servicing and Rs3,000 billion for defence; whereas the civil administration expenditure has been estimated at Rs1071 billion. As inflation is expected to hover around 8.2%, government employees have been promised a consolatory 7% raise in salaries. Pensioners are also going to get the same raise, with Rs1169 billion earmarked for retirees. The minimum wage is proposed to climb 10%. And Rs1091 billion have been earmarked for subsidies in power and other sectors. Likewise, the BISP as well as AJK, G-B and merged districts will get Rs280 billion from the federal exchequer.
Economic Projections and Fiscal Pact
The economy is projected to grow at 4% with an estimated deficit of 3.6% of GDP. The budget's centerpiece remains a new fiscal pact with the provinces. Under the new arrangement, the federating units will pool in Rs8848 billion to the federal revenue while the provincial share under the NFC Award will remain unchanged. The coming fiscal year must see Rs15264 billion generated in taxes, which is 17.6% higher than in the outgoing fiscal year. It is critical to note that a tax shortfall of over Rs800 billion must be carried over into the upcoming fiscal year, thanks to an inept tax machinery.
Tax Reforms and Relief Measures
In an unprecedented move for public health, the budget proposes abolishing the tax on sanitary pads and contraceptives. A startling feature, however, remains a cut in tax rates for salaried individuals earning between Rs2.2 million and Rs7 million a year. While slabs have been restructured from six to eight, those earning up to Rs183,000 a month will have no relief, whereas a surcharge on annual incomes above Rs10 million also stands abolished. In a bid to make the budget more progressive and restore confidence in the economy, the property sector has been given relief, the super tax on individuals and corporates has been slashed from 10% to 1%, and duties on several imported items have been reduced.
