The federal budget is a key document that determines the economic direction of any country. Government not only presents estimates of income and expenditure for the upcoming fiscal year but also sets targets for economic growth, employment opportunities, controlling inflation, increasing exports, and public welfare. However, in Pakistan, achieving the targets set in the federal budget has become increasingly challenging over the past several years.
One day before the budget announced, Government released the Economic Survey for the fiscal year 2025-26, in which the govt failed to achieve most of its targets. The current fiscal year’s GDP growth stood at 3.7%. Finance Minister attributed the decline in growth and failure to meet targets due to the Iran-Israel-US conflict. The government’s stance was that due to the regional situation and the possible closure of Strait of Hormuz, oil prices rose sharply. In my opinion, there is no doubt that the Iran-US conflict and disruption of the Strait of Hormuz affected GDP of Pakistan and several other countries.
Federal Finance Minister Mohd Aurangzeb on 12 June presented the budget for 2026-27 in the National Assembly amid loud protests from the opposition. I was also present in the guest gallery of Parliament House to observe the proceedings. It was disappointing to see that at such an important occasion, when the federal budget was being presented in the presence of Prime Minister Shehbaz Sharif, opposition members created disruptions by chanting slogans in front of the Finance Minister and tried to obstruct the budget presentation. Even after the budget was presented, PTI members and Opposition Leader Mahmood Khan Achakzai, in their speeches, did not offer any constructive suggestions regarding the budget; instead, their speeches remained focused on the release of Imran Khan. The Prime Minister once again in his speech offered the opposition a “Charter of Economy”, which he had also offered earlier, so that all parties could sit together and contribute in the progress of country’s economy.
In the current budget, the government has set the tax-to-GDP ratio at 4%, compared to 3.7% achieved last year. After the recent Iran-US peace agreement, achieving a 4% GDP target has become relatively easier for the government. For reducing poverty and unemployment, it is essential for Pakistan to consistently achieve 6% GDP growth. The budget sets a revenue target of Rs. 15,200 billion. In the previous fiscal year 2025-26, the FBR collected Rs. 13,600 billion having a short fall of Rs. 860 billion from the target; however, the current target is 11.5% higher, which is considered reasonable. In 2025-26, the tax-to-GDP ratio remained at 11%, whereas it is 18% in India and 13% in Türkiye. According to economic experts, Pakistan’s tax-to-GDP ratio should be between 15% and 18% to reduce poverty. The federal government has long complained that after the NFC Award distribution to provinces, it is left with very little, and a large portion of federal expenditures goes to defense and debt servicing. However, it is encouraging that this time, for defense and debt repayment, the provinces have agreed under a well-designed mechanism to provide 1,225 billion rupees to the federal government over the next three years, which may help address the federal government’s concerns.
It is encouraging for Pakistan and the global economy that an Iran-US agreement has been reached, under which the Strait of Hormuz is expected to be fully reopened for maritime traffic within a few days. Following this development, global oil prices, which had exceeded 100 dollars per barrel, have now dropped to around 80 dollars per barrel and are expected to decline further in the coming days, improving global economic conditions. At a time when Pakistan is being recognized globally for its role in the Iran-US agreement and its contribution is being acknowledged, and the country is emerging as an important player in the world, Gulf countries are increasingly viewing Pakistan as a security provider. It is important that Pakistan builds on its diplomatic achievements and global standing and transforming its position into an economic and trade revolution. Sustainable economic stability is the guarantee of any country’s security, sovereignty, and development. If this opportunity is used in the right direction, Pakistan can emerge as a more stable and influential state not only in the region but also at the global level.
