Pakistan set to unveil IMF-backed budget today, aimed at balancing growth and stability
KARACHI: Pakistan's Finance Minister Muhammad Aurangzeb is set to unveil an International Monetary Fund-backed federal budget for the 2025-26 fiscal year in parliament today, with economists describing it as a delicate balancing act aimed at preserving macroeconomic stability while reigniting growth.
The budget comes a day after the release of the Economic Survey of Pakistan, which showed that the country missed its annual growth target, expanding by 2.7 percent against a goal of 3.7 percent.
Economists say the government is now walking a 'tightrope' as it prepares its fiscal roadmap for the coming year.
'The upcoming budget is expected to be fiscally disciplined, aiming to strike a delicate balance between economic stability and inclusive growth,' said Sana Tawfik, head of research at Karachi-based brokerage Arif Habib Limited.
Pakistan's agriculture sector was a major drag on overall performance in the outgoing fiscal year, growing just 0.56 percent, while the industrial sector, especially large-scale manufacturing, also lagged.
The services sector fared slightly better with an estimated 2.9 percent growth. For the upcoming year, the government is targeting 4.2 percent GDP growth, according to Planning Minister Ahsan Iqbal.
In the new budget, businesses across sectors, including textiles, real estate, capital markets alongside foreign investors, are hoping for rationalization of key taxes such as the sales tax, capital gains tax, super tax and the levy on salaried income.
The government, however, is expected to stay the course on reforms mandated by the International Monetary Fund (IMF), which have helped stabilize the economy after years of high debt and dollar shortages.
'With IMF engagement in focus, the government is likely to prioritize fiscal consolidation, emphasizing revenue enhancement through broadening the tax base,' Tawfik said.
The IMF has pressed Pakistan to bring more sectors into the tax net, particularly agriculture, real estate and retail.
Prime Minister Shahbaz Sharif's administration has already withdrawn subsidies and raised electricity tariffs in recent years to boost revenue, key conditions under the IMF program.
'While development spending may remain contained due to limited fiscal space, the overall direction appears to favor continuity of reform,' Tawfik said.
Mushtaq Khan, former chief economist at Bank Alfalah Limited, said the government is expected to wage a 'war on cash' in the coming fiscal year by promoting a cashless economy.
He added the Sharif administration now appears more 'confident' as his coalition government has seemingly gained political strength in the wake of the recent military standoff with India.
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