Budget 2025–2026: A hope for progress or a storm of inflation?
In Pakistan, the annual budget is seen as an opportunity for the government to express its economic priorities and development strategies. The current government has presented the fiscal year 2025–2026 budget at a critical juncture when the country is facing an economic crisis, rising debt, inflation, and a water emergency.
This budget will not only impact the daily lives of the people but also determine the future direction of Pakistan. In this column, we compare the current budget with the previous two budgets (2023–2024 and 2024–2025), while also analyzing its potential effects on various social and economic classes.
Comparative Analysis of Budgets 2023–2024, 2024–2025, and 2025–2026:
In the 2023–2024 budget, the total size was PKR 14.5 trillion, with a revenue target of PKR 9.2 trillion. This increased to PKR 16 trillion in 2024–2025, with a revenue target of PKR 10.2 trillion. The 2025–2026 budget now stands at PKR 18.5 trillion, with a tax collection target of PKR 12 trillion.
The fiscal deficit was 7.6 percent of GDP in 2023–2024, reduced to 6.9 percent in 2024–2025, but is expected to rise again to 7.2 percent in 2025–2026, which is an alarming indicator. The current account deficit stood at $2.8 billion in 2023–2024, which improved to USD 1.9 billion in 2024–2025. However, due to an expected increase in imports and a decline in exports, it is projected to reach USD 3.1 billion again in 2025–2026.
Impacts on Different Social Classes:
Lower-income Class: This year, PKR 400 billion has been allocated for the Ehsaas Program, up from PKR 360 billion last year. However, subsidies have been cut by 18 percent. The increase in electricity and gas prices will hit this class the hardest.
Middle Class: New income tax slabs have been introduced for salaried individuals, increasing the burden on those earning over PKR 80,000 per month. There is no significant relief in educational expenses.
Upper Class: Tax has been increased on purchase of luxury items, large houses, and expensive cars. However, no significant increase has been made in capital gains tax, keeping the investor class largely unaffected.
New taxes and their impact:
Federal Excise Duty (FED) increased on cigarettes, sugar, and soft drinks. A 2 percent rise in income tax on annual incomes above PKR 1.5 million. The 35 percent withholding tax on non-filers. A fixed tax scheme introduced for small traders. These tax measures will indirectly burden the poor and middle class, while the lack of expansion in direct taxation limits the pressure on the elite class.
Trade deficit:
The government expects the trade deficit to reach $28 billion in 2025–2026, higher than $25 billion in 2024–2025. The deficit is widening due to limited export growth and rising imports. Increased taxation instead of relief on industrial raw materials may worsen the situation.
IMF pressure:
Under the $3 billion IMF program, several tough measures have been adopted in the current budget, including: Cuts in energy subsidies, Increase in electricity tariffs, Implementation of an automated revenue collection system. Around 80% of the budget decisions align with IMF recommendations, drawing criticism that such moves could harm local industries and public welfare projects.
Poverty and unemployment:
The proportion of people living below the poverty line is expected to rise to 39 percent this fiscal year, up from 36 percent in 2024. Decreased job opportunities, additional burden on SMEs, and rising inflation may increase unemployment.
Fuel, electricity, and water bills:
A PKR 20 per liter increase in petroleum levy is expected after the budget. A 15 percent increase in electricity base tariffs has been proposed. PKR 85 billion has been allocated to tackle the water emergency, including the construction of dams, rainwater storage, and water recycling projects.
Development vs. non-development expenditures:
Development Budget: PKR 1.4 trillion (PKR 1.15 trillion in 2024–2025). Non-Development expenditures: PKR 6.5 trillion. 60 percent of the development budget is allocated at the federal level, while 40% is for the provinces. However, weak monitoring mechanisms limit its impact at the grassroots level.
Foreign investment:
The government has attempted to attract foreign investment through special economic zones and relaxed digital taxes. However, political instability and judicial uncertainty remain major hurdles for investors.
Other key aspects of the budget:
PKR 60 billion allocated for combating climate change. Extension of tax exemptions for the IT sector andPKR 50 billion allocated for youth skills development programs.
Conclusion and recommendations:
While the budget sets a direction for the economy, it reveals several gaps when matched against ground realities: Limited expansion of direct taxes leaves the wealthy class largely unaffected. The poor and middle class are likely to face more hardships. Greater transparency and monitoring are essential for effective development spending. The government must expand the tax net, curb corruption, and promote local industry and agriculture to build a sustainable economy. Restoring public trust will require not a superficial but a transparent, fair, and balanced budget.
(The writer can be contacted on [email protected])
Copyright Business Recorder, 2025
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