On June 10, Finance Minister Muhammad Aurangzeb presented the federal budget for the fiscal year 2025–26 at a time when Pakistan finds itself delicately balanced between macroeconomic stabilization and structural fragility. With a total outlay of ₨17.6 trillion, a noticeable contraction from last year’s ₨18.78 trillion, the government seems to have prioritized financial restraint over electoral populism, a decision that warrants recognition.

However, a budget’s accurate measure is not in its arithmetic but in its ability to deliver tangible improvement in the lives of ordinary citizens. On that front, Budget 2025–26 walks a fine line – commendable in its fiscal prudence and reformist tone but still lacking depth and readiness where structural delivery, equity, and long-term transformation are most needed.

A budget’s accurate measure is not in its arithmetic but in its ability to deliver tangible improvement in the lives of ordinary citizens.

In an election-heavy environment, the government has shown discipline by avoiding aggressive giveaways. Targeting a fiscal deficit of 4.8%–5.1% of GDP and a primary surplus of 1.6%, the budget largely aligns with IMF expectations. The projected decline in interest payments from ₨9.7 trillion to ₨8.2 trillion is encouraging; however, it is mainly due to rebase-lining and monetary easing rather than fundamental changes in debt structuring.

Nonetheless, the government’s unwavering commitment to fiscal consolidation sends a strong message. This alignment with IMF expectations is significant as it indicates Pakistan’s willingness to adhere to international standards and attract foreign investment.

However, whether this discipline will extend beyond numbers to institutional reform and effective delivery remains a question. It demonstrates that the government recognizes the consequences of chronic deficits, such as inflation and reduced investor confidence, and the importance of restoring investor confidence.

₨14.1-14.3 trillion must be collected by the Federal Board of Revenue (FBR), which is a 16-18% increase from last year. Without administrative reform, digitization, and robust enforcement, however, achieving this remains an aspiration.

It has been long overdue to tax the agricultural, real estate, and retail sectors, which have remained untaxed for years now. Thus, bringing freelancers, content creators, and high-income pensioners into the net is aimed at promoting fairness. However, these measures may face significant political resistance, especially within [specific sectors or regions], despite being sensible decisions coming from a country’s perspective.

Pakistan does not have a problem with its tax rates; it has one with coverage and compliance instead. Over 60% of the economy operates in the informal sector. To broaden the base beyond policy declarations, NADRA integration with FBR, land records, and banking data, along with transparent audit trails and automation of tax processes, is essential.

Pakistan does not have a problem with its tax rates; it has one with coverage and compliance instead.

To make any real progress, however, it is only through decreasing discretionary powers and increasing transparency that the government can do so. Delays, cost increases, and politicking mark Pakistan’s history of PSDP. We may repeat the same mistakes unless we decouple project selection from politics and do impact assessments transparently.

The budget provides a 7.5–10% salary increment and a 5–7.5% pension increase, offering some relief to public servants amid a falling inflation rate. Nevertheless, the genuine concern lies in the pension bill that has now reached over ₨1.05 trillion per year. This unfunded liability is ballooning and could crowd out future development spending. The government’s acknowledgement of a need for pension reform is welcome, but reforms must be more than talk. Introducing a contributory pension system for new entrants, gradually shifting away from defined-benefit structures, and linking payouts to inflation-adjusted thresholds could stabilize this growing fiscal burden.

Cautious optimism underlies the Government’s GDP growth target of 4.2%, compared to last year’s 2.68%. The industrial sector is expected to grow by 4.8%, while services are projected to grow by 2.9%, with agriculture likely showing some improvement as well. Pakistan also experienced a current account surplus of US$1.9 billion and foreign reserves of US$14 billion, equivalent to 3.6 months of import cover.

However, these tender sprouts are delicate. Pakistan’s economy continues to be vulnerable to commodity shocks, climate variability, and geopolitical shifts. Despite positive momentum in IT exports (+32%) and digital banking usage (+89%), broader issues persist, such as low productivity levels, informal labor, and underutilization of the female workforce.

The real test lies not in design, but in execution.

For growth to be sustainable, the country must address its supply-side constraints, including improving logistics, enhancing access to credit for small and medium-sized enterprises (SMEs), promoting value-added exports, and investing in vocational education. Otherwise, consumption-driven growth as well as remittances would be inherently unstable.

The government must proceed with its plans to privatize unproductive state-owned enterprises (SOEs), such as PIA, Pakistan Steel Mills, and DISCOs, which have drained billions from public funds. The strategy to use State Bank dividends (1% of GDP) to reduce public debt is also a sensible approach.

Nevertheless, Pakistan’s experience with privatisation provides a cautionary tale. Vested interests, such as those of current state-owned enterprise (SOE) employees, legal battles, or a lack of transparency, often hinder reforms.

This time around, the government must adopt a time-bound, bipartisan strategy with robust regulatory safeguards and transparent bidding processes. The involvement of independent transaction advisors, ensuring fair labor transition plans, and keeping parliamentary oversight could help enhance public trust in the process, making the audience feel confident in the government’s actions.

To translate fiscal discipline into public prosperity, the following steps are essential:

1. Tax Reform with Accountability: Merge national and provincial tax databases to track wealth more effectively; introduce third-party audit trails; create a fast-track tax tribunal system to reduce litigation bottlenecks.
2. Social Spending Tied to Impact: Increase allocations to education and health, but link disbursements to measurable outcomes like literacy rates, maternal health indicators, school retention, etc.; Use conditional cash transfers under BISP to incentivize enrollment and health checkups.
3. Pension Sustainability: Transition new government hires into a contributory system; cap annual pension increases at inflation-adjusted levels; explore hybrid models for current beneficiaries with high pensions.
4. Public Investment Management: Subject all PSDP projects above a specific value to cost-benefit analysis; Publish quarterly updates on project execution and fund disbursement. This will ensure that the audience feels secure about the government’s financial decisions.
5. Human Capital Development: Allocate resources for skills training, especially IT-related skills such as those in renewable energy and agribusiness. Therefore, provinces should encourage TVET programs that are industry-specific.

6. Digital Inclusion and SME Growth: Promote digital payment adoption, simplify SME registration processes, and offer tax breaks to export-oriented startups and micro enterprises.

A Budget Worth Supporting, But Only If Followed Through. Budget 2025–26 strives to strike a balance between fiscal realism and developmental intent. It avoids the populist traps, acknowledges the need for change, and initiates reallocation of taxes and expenditures. This, by itself, is not a small achievement.

If this budget acts as a foundation for broader reforms… it could be a game-changer for Pakistan’s economic and social trajectory.

However, the real test lies not in design, but in execution. The budget’s promises of taxing the untaxed, rationalizing subsidies, reforming pensions, and revitalizing state-owned enterprises (SOEs) will mean little unless they are translated into tangible outcomes that benefit ordinary people. More than slogans or numbers, it is whether ordinary Pakistanis will feel more secure, better educated, and more economically included in their lives that will determine the government’s credibility.

If this budget acts as a foundation for broader reforms focused on citizen welfare and institutional accountability by the current administration, it could be a game-changer for Pakistan’s economic and social trajectory.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.