Live: Budget 2026 27

As part of its budget proposals for the next fiscal year (FY26-27), the government has announced a range of measures to provide some measure of relief to the public, ranging from an expanded income support programme for the most vulnerable segment of the population, to lower taxes for individuals earning more than Rs183,000 a month.

As part of its relief, subsidy and social safety plans, the government has announced a seven per cent increase in salaries for serving federal employees, a 7pc increase in pensions for retired employees, and a 10pc increase in the federal minimum wage. However, with inflation expected to average 8.2pc over the next fiscal year, the gains in real terms are expected to be minimal.

The budget for the Benazir Income Support Programme has also been increased by 17pc to Rs838 billion, with programme to cover 12 million families. Another 9.2m children are to be provided educational scholarships under the government’s proposals.

The PM Apna Ghar scheme, which has gained quite a lot interest in recent months, is getting another Rs71bn for the next year for subsidised, low-interest mortgage loans at a fixed mark-up of 5pc.

Separately, the budget also holds some good news for the salaried class. The government has proposed that those earning an annual income of between Rs2.2-3.2m be taxed at a maximum rate of 20pc instead of 23pc; those earning between Rs3.2-4.1m be taxed at 25pc instead of 30pc; those making between Rs4.1-5.6m be taxed at 29pc instead of 35pc; while those making between Rs5.6-7m be charged at a maximum rate of 32pc instead of 35pc. Only those making above Rs7m a year will now be charged the maximum rate of 35pc. Because of these proposals, the number of tax slabs will increase from six to eight, allowing better rationalisation of the tax burden on various income groups.

The government has also proposed removing the 9pc income tax surcharge on high-earners (those making above Rs10m a year), while it also seeks to abolish the super tax for businesses earning up to Rs500m. The super tax on business with income exceeding Rs500m is proposed to be slashed down to 8pc instead of the prevailing 10pc. However, this exemption will not apply to banks, oil and gas companies, and fertiliser manufacturers.

Expected relief for the real estate and construction sector has also materialised, with the government proposing to halve the withholding tax for filers. The government has also proposed the complete abolishment of the Capital Value Tax on declared foreign assets to encourage declaration.

The concessionary 0.25pc ‘final tax regime’ for IT and IT-enabled services exports — which has long been a lifeline for the freelance and startup ecosystem — has been extended for another three years. Meanwhile, the minimum tax on exports in general has been proposed to be cut to 1.25pc instead of the prevailing 2pc.

There’s good news for everyone who uses their credit and debit cards to make foreign transactions as well. The withholding tax on such transactions is proposed to be cut from 5pc to 0.5pc in a bid to “discourage informal channels”.

A copy of the Finance Bill seen by Dawn also makes comfortable travel more accessible for those who can afford it. It states that new federal excise duty rates are being proposed for club, business and first class tickets issued after July 1, 2026, which will be: Rs50,000 (Americas), Rs25,000 (Middle East/Africa) and Rs40,000 (Europe/Far East). However, the finance minister’s speech proposed that the FED on business class tickets be abolished completely. Perhaps this confusion will be resolved through a clarification note.

Finally, the government has proposed to completely remove sales tax and duties on sanitary pads, contraceptives and over 100 raw materials used in cancer medicine manufacturing, which is expected to make these items more accessible to the general public.

The Pakistan Economic Survey arrives each June in two registers. The first is the press conference: growth is back, inflation has been beaten. The second is the statistical annex, which records, without adjectives, what actually happened—and this year it describes a stabilisation, real, hard-won, and worth defending. Except that it has so far fixed none of the things that made stabilisation necessary in the first place.

We have been here before—in 2000, in 2016, in 2019; the difference this time should be what we do next. Four root problems run through the tables: a tax system that collects too little and distorts what it touches; an exchange rate we manage for comfort rather than competitiveness; an industrial policy that keeps backing the wrong horses; and a fiscal federalism model that has quietly broken. The Survey documents all four.

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The machine, in two paragraphs

Take one object and keep it in view: a Faisalabad textile exporter’s invoice. The price on it is in dollars. Almost everything behind it is paid in rupees (this refers to the gas, wages, taxes withheld along the way, the cotton). The rate at which those rupees convert decides whether the shirt behind the invoice is competitive in Hamburg or priced out by one stitched in Ho Chi Minh City. When the rupee holds still while our costs rise faster than our competitors’ costs, that shirt becomes more expensive without anyone announcing anything. Most of what this article describes, taxes, interest rates, subsidies, transfers between Islamabad and the provinces, eventually lands somewhere on that invoice.

One more tool and the toolbox is complete: most numbers in this article come in two flavors. Nominal numbers are counted in today’s rupees. Real numbers strip inflation out. After years of double-digit inflation, an entry in the budget (or a budget line in bureaucratspeak) can grow every single year in rupees while shrinking every single year in what it actually buys. Where the difference matters, the figures show both.

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Start with what the government can rightly claim. Pakistan posted primary surpluses (revenues exceeding all spending except interest) in both FY2024 (+0.9 per cent of gross domestic product) and FY2025 (+2.4 per cent), the first back-to-back primary surpluses in roughly two decades.

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What a primary surplus is, and why it is the test that matters

Take the government’s finance books and isolate one line that says: interest on past debt. If what remains is in surplus, today’s state is paying for itself; the red ink that remains is the bill for yesterday’s borrowing, not a new hole being dug. That is why creditors watch this number above all others. It separates a government living beyond its means from one carrying old debts while living within them.

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Whatever one thinks of how the adjustment was distributed, the adjustment happened, and it is why default stopped being a question we worried about every day.

Inflation fell from a 29.2 per cent annual average at the FY2023 peak to 6.2 per cent over July–April this year. The monthly path deserves a wary eye rather than alarm. April’s reading was back in double digits year-on-year, at 10.9 per cent, and May’s (published after the Survey went to print) came in at 11.7. But both prints sit on exceptionally low bases from last spring, with the Gulf conflict’s energy pass-through arriving on top, and single months are unreliable witnesses: base-period comparisons shift sharply month to month, and administered-price adjustments can dominate the signal in any one reading. Whether disinflation has merely paused or genuinely ended is a question the next quarter will answer, and it is the single number we will be watching.

The disinflation we did get was food-led. Food inflation collapsed from over 20 per cent to under 4, while non-food has stayed sticky in the 7–8 per cent range.

Falling food prices are a blessing, but they are weather and global markets, not institutional capacity; they can also be a curse, because they point towards increased vulnerability among farmers and others who rely on farm earnings.

Reserves, meanwhile, have been rebuilt to about four and a half months of goods imports—the most comfortable position since FY2016, though, as the data clearly shows, we continue to oscillate in a narrow band far below the world average of around nine months of import cover (and the gap is wider than it looks: the world figure counts goods and services imports, a basis on which our own coverage falls below the headline four and a half).

Stabilisation, then, is genuine. The question the rest of the Survey answers is what we bought with it.

The bill arrived in the Social Protection chapter, in a single row of Table 16.1: 28.9 per cent of Pakistanis below the national poverty line in 2024-25, up 7.0 percentage points from 21.9 per cent in 2018-19—the largest reversal in the published series, with inequality rising alongside (the Gini index, a standard 0–100 measure, went from 28.4 to 32.7).

This is the government’s own household survey, its own cost-of-basic-needs line (Rs 8,484 per adult equivalent per month — roughly $3.50 a day at 2021 purchasing-power-parity rates, below the World Bank’s own $4.20-a-day lower-middle-income standard), endorsed by its own technical committees. More than a decade of poverty decline was undone in six years of crisis and stabilisation. Ensuring that poverty surveys come back to their historical once-in-two-years cadence is of the highest importance: the government and country need to monitor those who have suffered most from our economic stagnation and ensure prompt action for those below critical thresholds.

Having paid such a heavy toll for the short-termism of successive governments, the engine that would reverse the situation has not restarted. Total investment stands at 14.4 per cent of GDP—barely off the FY2024 trough of around 13 per cent, the lowest since the early 1970s, and down from about 17 per cent as recently as FY2018.

The celebrated external balance is largely this weakness in disguise: we are balanced because we do not invest, not because we export. The financial system enforces the pattern: government paper now absorbs roughly 72 per cent of banking-system domestic credit, the private sector’s share has slid from about 35 per cent in FY2016 to 21 per cent, banks lend out a historic-low 37.5 per cent of their deposits, and private credit stands at about 8.7 per cent of GDP — among the shallowest in Asia.

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Crowding out, from the borrower’s side of the desk

A bank holding a deposit has a choice: lend it to a business, with all the risk and paperwork that entails, or hold a government security that pays well and cannot default in rupees. When the government borrows this heavily, the second option wins by default. Our Faisalabad exporter feels it as a working-capital loan that is slow, scarce, and expensive — not because a banker judged the business weak, but because the business was never really in the running against a treasury bill.

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No crisis, no headline; just no credit for anyone without a sovereign guarantee.

Why does every stabilisation land on the same rocks? Begin with revenue. The Federal Board of Revenue’s collection crossed 10 per cent of GDP in FY2025 — a fifteen-year high that is still far below what a state with our obligations requires.

The composition is the deeper problem (though the direct-tax share has genuinely risen, to 49.3 percent of FBR collection): the burden concentrates on the formal wage earner, the compliant firm, and the import stage, while agriculture, retail, and property remain lightly touched. Our exporter’s invoice carries withholding at the bank, levies on the energy in the yarn, and advance tax on the machinery — while the wholesaler two streets over, undocumented, carries none of it. A system like this does not merely under-collect; it actively rewards informality and punishes the documented. Until the base widens, every fiscal target will be met — when it is met — by squeezing the same narrow set of taxpayers harder. The Finance Bill announced today softens the squeeze in one place and tightens it in another: salaried taxpayers got restructured slabs and the abolition of the 9 per cent surcharge, while the advance tax on exporters was raised from 1 to 1.25 per cent — and of the forty-one reform proposals we tracked into this budget, the Bill is silent on twenty-seven.

If taxation is how we underfund the state, the exchange rate is how we misprice everything the state’s economy sells. Pakistan’s exchange-rate policy has alternated between two errors: letting the rupee get overvalued by running reserves down or the policy rate up, then crashing. The Survey’s dollar-denominated good news should be read against that history. Per-capita income at $1,901 is a record — but decompose the change, and price effects (low inflation, a stable rupee) did roughly twice the work of real growth; and last year’s figure was quietly restated from $1,824 to $1,751 ($7 of national-accounts revision, $66 from adopting the 2023 census population).

Dollar incomes, in other words, are partly an artifact of where the rupee currently sits.

The same is true of the debt ratio. Every deferred adjustment eventually presents its bill in points of debt-to-GDP, dated the morning of the next depreciation — FY2018-19 paid FY2017’s. To demonstrate this, I built a counterfactual: revalue the external debt each year at the exchange rate implied by a real effective exchange rate (REER — the trade-weighted, inflation-adjusted value of the rupee) of exactly 100. The mechanism is sobering across the whole arc since FY2008: at the peak of the last defended peg, in FY2017, the rupee’s 22 per cent real overvaluation under Ishaq Dar was hiding more than four points of GDP worth of debt; the FY2023 crash then went the other way, mechanically adding roughly two and a half points overnight; today’s mildly strong rupee subsidizes the headline ratio by about half a point.

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How to read the counterfactual

The Real Effective Exchange Rate or REER asks one question: against the currencies of everyone we trade with, after everyone’s inflation, is the rupee expensive or cheap? A reading of 100 means neither. Our exercise replays the last eighteen years with the rupee held at exactly 100—no defended pegs, no crashes—and recomputes the debt ratio each year. The gap between that line and the actual one is the part of our debt story that exchange-rate management wrote.

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What three decades of this cycle have cost us is visible in the export base: exports of goods and services have shrunk from about 17 per cent of GDP in the mid-1990s to roughly 10 per cent, while Bangladesh moved past us around FY2000 and kept going. Every episode of the dear-rupee comfort settled silently onto invoices like our exporter’s, and orders moved to Dhaka.

The gap is papered over by remittances — a record $38 billion in FY2025, over 9 per cent of GDP, more than covering the goods deficit.

There are at least two problems with financing trade through remittances. First, relying this much on remittances means that we are vulnerable to events and policy decisions outside our country: at least half of these inflows (likely closer to three-fifths) come from two Gulf economies whose economic cycles and policies we have no control over. Second, and perhaps more important still, using remittances to keep the dollar cheaper than the trade balance justifies, and biasing imports towards consumption, means that we fail to develop an export sector that connects to global value chains and helps inject international talent and training into the country. Import-substitution industries, by their very nature, are far less likely to do this. Remittances are a transfer from Pakistanis we failed to employ; treating them as an export strategy is the policy equivalent of calling emigration a jobs program.

There is a better use for these inflows than financing a comfortable exchange rate. The State Bank should be buying more of them — building reserves toward the import cover we visibly lack — and sterilising the rupee consequences, rather than letting the inflows price our exporters out (the central bank has been purchasing dollars under the program’s reserve targets; the argument here is about scale and intent). Sterilisation carries a fiscal cost — the gap between what reserves earn and what mopping up the rupees pays — but it is insurance priced well below the cost of the next crash, and it converts a vulnerability into a buffer.

Industrial policy is supposed to pick winners. Ours picks incumbents. The Survey’s manufacturing tables show where growth actually came from this year — and how little it owes to the sectors we protect most expensively.

Textiles, holding the largest weight in large-scale manufacturing at 18.2 per cent, grew 0.75 per cent; the chapter does not connect this to the collapse of its raw material, but the agriculture tables do: cotton production is at roughly half its FY2015 peak, and its sown area had fallen by a third before the 2022 floods ever arrived. The cotton on our exporter’s invoice, once Punjab’s, increasingly arrives by ship and is paid for in the same dollars the invoice is supposed to earn.

What took cotton’s land? Sugarcane — water-hungry, politically protected, and expanding through three consecutive years in which the Survey’s own irrigation section reports surface water 10–13 per cent below average. Meanwhile, cement capacity nearly doubled over the past decade — from about 46 million tonnes in FY2016 to 85 million today — while domestic demand stagnated, leaving utilisation near 60 per cent. Tariff walls for autos, support prices for sugarcane, energy subsidies for whoever lobbies best — and the one unambiguous success story, information-technology exports pacing toward their first $4 billion year, grew up largely outside the protection racket (official figures likely understate it — earnings retained abroad by freelancers and firms mean the $4 billion is a floor, not a ceiling).

The result of all this selection is the absence of stabilisation’s purpose: structural change. Agriculture, industry, and services hold essentially the same shares of our economy as they did thirty years ago — agriculture’s share, about 23 per cent, has not fallen at all.

We have churned policy, burdened our people with debt, and let them slide into deeper poverty without transforming structure.

Nowhere is the churn more institutionalised than in the federation’s own finances. Two days before this budget, the National Economic Council froze provincial development programs at what provinces actually spent this year — with Punjab’s plan, per reporting from the meeting, nearly halved against its previous budget.

At first glance, the mechanism is arithmetic, not malice: the International Monetary Fund program requires a consolidated primary surplus of 2.5 per cent of GDP this year, and the IMF’s program document sets the provincial contribution at Rs 1,464 billion this fiscal year — about 59 per cent above the Rs 921 billion surplus the provinces actually managed in FY2025, rising to Rs 1,937 billion by FY2027 — and since salaries and pensions cannot move, development is the only line that can.

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The NFC award, in one paragraph

The National Finance Commission award is the formula that splits the big federal taxes between Islamabad and the provinces. Since 2010, the provinces’ share has been 57.5 per cent, and the Constitution does not allow it to fall below that. The Center or federal government keeps the debts, the interest bill, and Defence—and can fund nothing else without borrowing. The provinces hold the schools, hospitals, and police that decide whether poverty falls. The annual budget fight is, at bottom, an argument over who agrees not to spend.

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But step back and ask why the federation needs its provinces to not-spend their constitutionally promised transfers. The answer is in the expenditure tables: federal interest payments rose from 3.8 per cent of GDP in FY2017 to 7.8 per cent in FY2025 — about 37 per cent of all consolidated spending, and a 70 per cent increase in real, inflation-adjusted terms in the five years from FY2020.

The Center borrows, the Center pays interest—92 paisas of every rupee the Center retains after NFC transfers in FY2025, down from 97 paisas the year before. The provinces receive more than a third of federal revenue as formula transfers, return a growing share as compulsory surplus, and are being asked to raise that surplus by nearly 60 per cent next year. Nobody in this system has a reason to mobilise the revenue that would actually change the arithmetic.

The deeper problem is not the accounting, it is the incentives. In any fiscal system, the entity that keeps the marginal rupee of revenue effort is the one with reason to try. Pakistan’s arrangement, fixed since the 7th NFC Award in 2010, gives provinces a formula-determined 57.5 per cent of the divisible pool regardless of whether they tax agriculture, property, or services (all provincial subjects). The marginal rupee of a province’s own revenue effort earns it roughly one rupee; the marginal rupee of federal effort earns the provinces collectively 57.5 paisas on the divisible pool — with no exertion of their own. There is no residual claimant — nobody keeps what better performance would create. The same disconnect repeats inside each province: district services are run by center-appointed administrators with no stake in outcomes, funded by capitals that keep the lion’s share. China’s local growth engine in the 1980s and early 1990s ran on exactly the opposite design — a fiscal-contracting system under which localities that generated revenue above their quota kept most of what they raised, and competed to raise it.

Strip out the macro and the question is what the state delivers per person. Education spending has fallen 23 per cent in nominal terms since its FY2023 peak — Rs 1,251 billion then, Rs 962 billion in FY2025, on the same consolidated series — before counting a single point of inflation; in real per-capita terms it has roughly halved from its FY2019 peak.

Health spending stands at 0.8 per cent of GDP and falling, with the COVID-era bump fully reversed. Even capital’s own scoreboard tells the real-terms story: the stock market’s record nominal highs deflate to a market capitalisation 4 per cent below its FY2013 level.

The energy transition we advertise is additive rather than substitutive — clean sources now supply half our electricity, but thermal generation is flat in absolute terms, so the capacity payments roll on.

And the labour market is not absorbing the population: over the latest survey window the workforce grew by 11.3 million but employment by under 10 million, unemployment rising from 6.3 to 7.1 per cent even as participation improved — a demographic dividend, two-thirds of us under thirty, with no industrial structure to collect it.

Stabilisation was the precondition for fixing all of this. It is not the fix. The Survey, read honestly, is a list of the reforms we have deferred — taxation, the exchange rate, industrial selection, the federation’s fiscal architecture — together with a precise accounting of what each deferral now costs. Today’s budget will tell us whether we have noticed.

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Note: All data is from the Pakistan Economic Survey 2025-26

Prime Minister Shehbaz Sharif on Friday stressed the importance of the country having “strong” security, as he spoke about the budget-making process.

He made the remarks during a federal cabinet meeting that approved the budget, which is now expected to be tabled in the parliament. “Today, we are presenting the third budget of our government,” the premier noted.

“There were definitely a lot of challenges while preparing this budget. I believe that no nation can handle its matters, let alone make progress, if its security is not strong and invincible,” the prime minister stressed.

He added, “We have to build water reservoirs and dams [as well as] work with speed on indigenous energy resources, which include solar panels, wind, and batteries.”

The prime minister mentioned that “measures for tax relief and economic progress” will be proposed in the budget.

Noting that the government had “lengthy discussions” with the International Monetary Fund (IMF) during the budget-making process, PM Shehbaz said he had a 30 to 45-minute-long phone call with its Managing Director Kristalina Georgieva, who hailed Pakistan’s economic progress.

He noted that the PML-N had “very detailed conversations” with its ally PPP, which were “successful”. He also thanked other coalition allies for their “unconditional” support.

The prime minister highlighted that the Centre remained engaged in “comprehensive interaction” with the four provinces over the past one and a half months.

“They were told how the centre needs additional funds,” he said, terming the dialogue with the provinces “very meaningful”.

The PML-N and the PPP had agreed to cut development and other expenditures at all tiers of the federation and jointly create similar, but higher, fiscal space next year for additional “strategic needs”.

As a result, the freeze on allocations for provincial development programmes will continue for a specific period beyond one year, according to Finance Minister Muhammad Aurangzeb.

During his address, PM Shehbaz appreciated PML-N President Nawaz Sharif, calling him his “leader”, and Punjab Chief Minister Maryam Nawaz for “showing a big heart for the pressing needs of the federal government”.

“They said that they stood ready to extend support to the federal government in challenges in defence and water security,” he remarked.

The prime minister then recalled his team had “several” meetings with the Sindh leadership, which also cooperated. He thanked President Asif Ali Zardari and PPP Chairman Bilawal Bhutto-Zardari for their “decision in the best interest of the country”.

PM Shehbaz also thanked Balochistan CM Sarfraz Bugti’s “big-heartedness” and KP CM Sohail Afridi’s “positive sentiments”.

“There can be no grander demonstration of national unity, solidarity, and cohesion than this,” he remarked.

The premier acknowledged that “despite our best efforts”, the government had to impose taxes in the past two budgets due to the “national and IMF requirements so that the economy […] could be stabilised and the avenues for progress could be expanded”.

The prime minister added: “Definitely, the common man had to face many difficulties due to it, and I, on my own and the cabinet’s behalf, would like to thank the 240 million people of Pakistan who tolerated the inflation with patience.”

PM Shehbaz highlighted that inflation had declined to single-digit from 38 per cent in the past two years, before increasing slightly due to the ongoing Middle East conflict. He further highlighted that the policy rate had also dipped to 11pc from 22.5pc during the period, but had to be raised due to the impacts of the US-Iran war.

“Today, our economy is stable, and we should hope that with this third budget, […] the wheel of our economy will pick up pace on the condition that we collectively work hard around the clock and stand ready to fulfil our responsibilities,” he emphasised.

At the outset of his address, PM Shehbaz said he attended the funeral prayers of “martyrs who sacrificed their lives in the line of duty”, which included two Christians.

“It was a heart-wrenching scenario that brought tears to every eye,” he said, recalling his meeting with the families of the martyred personnel.

KARACHI: A delegation of the Muttahida Qaumi Movement-Pakistan (MQM-P) called on Prime Minister Shehbaz Sharif in Islamabad on Friday and discussed the budget for FY2026-27 and development projects for Sindh were discussed, according to the Prime Minister’s Office (PMO).

A statement issued by the PMO said that the delegation was led by Dr. Khalid Maqbool Siddiqui, convener of the MQM and federal minister for education and professional training. It also included Health Minister Syed Mustafa Kamal and Members of the National Assembly Farooq Sattar, Amin ul Haq, and Javed Hanif.

The meeting was also attended by Planning Minister Ahsan Iqbal, Law Minister Azam Nazeer Tarar, Federal Minister for Economic Affairs Ahad Khan Cheema, Information Minister Attaullah Tarar, and the prime minister’s advisor on political affairs, Rana Sanaullah.

“The meeting discussed the federal budget for the fiscal year 2026-2027. Views were also exchanged on the overall political situation of the country,” the statement said.

The premier said that the MQM was an “important allied party of the government”, commending its “positive and constructive role in the development of the country, economic stability, and the completion of the agenda for public welfare”.

“This collaboration will continue in the future with the same spirit for national interest and public service,” he said.

MQM-P leader Aminul Haque told Dawn that the matter of a “special development package” for Sindh’s urban areas was raised during the meeting and that his party sought an allocation of Rs20 billion for projects for Karachi and another Rs5bn allocation for Hyderabad in the budget.

He said that PM Shehbaz had assured the delegation that “sufficient” allocations had been made in the budget for Karachi and Hyderabad.

The prime minister also “promised the release of the required funds” for the Greater Karachi Bulk Water Supply Scheme or K-IV project, Haque said.

“He told us that the government is taking all-out measures to complete the project by December 2026,” he said.

Moreover, he said, the MQM-P delegation also raised the issue of the M-9 Motorway, which connects Karachi and Hyderabad. “The prime minister said that M-9 should be considered an expressway or highway, and not a motorway.”

Haque said the premier was urged to ensure that Sindh “gets a proper motorway connecting Karachi and Hyderabad”.

He said Main Line-1 (ML-1) — a railway project, a section of which connects Karachi to Rohri — was also discussed during the meeting. Haque said the MQM-P was of the view that it was the federal government’s flagship project and work on its Karachi-Rohri section should be initiated in the fiscal year 2026-27.

He said the meeting continued for half an hour and PM Shehbaz, as well as PML-N’s top leadership, “promised to address all issues raised during the meeting”.

On the issue of the Sindh governor, Haque told Dawn that the premier was informed that the MQM-P believed that the governorship of the province should go to their nominee, as it was the second-largest party in Sindh.

A source privy to the details of the meeting said that PM Shehbaz told the delegation that he agreed with the MQM’s position, but the matter was settled for now with the appointment of PML-N’s Nehal Hashmi.

PML-N stalwart Hashmi was sworn in as the new governor of Sindh in March, following the sacking of Kamran Khan Tessori. The surprise move had drawn a strong reaction from the MQM-P, which complained that it had not been taken on board before the decision to remove its nominee from office, calling it a “grave mistake” by Islamabad and vowing to soon decide its future course of action.

The PML-N’s other ally, the PPP, on the other hand, welcomed the appointment of Hashmi as the new governor.

Ahead of the presentation of the federal budget, wider pre-budget consultations have been held between major allied parties in the Centre.

President Asif Ali Zardari on Monday stressed that the upcoming budget should prioritise “public welfare, provincial rights and economic stability” during a meeting with PM Shehbaz.

Last week, the MQM-P demanded that Karachi’s Rs450bn share under the National Finance Commission (NFC) Award be transferred directly to the city in the next fiscal year instead of being routed through the Sindh government.

Senior MQM-P leader Dr Farooq Sattar said it was time to devise a fair mechanism for the distribution of financial resources among major cities, other urban centres and rural districts, based on their respective contributions to national revenue, population size and the specific needs of their areas.

Until last week, the federal government, its coalition partners and provincial governments had been struggling to reach a consensus over the Centre’s demand for more than Rs1tr for strategic needs.

However, the ruling PML-N and its major ally, the PPP, on Monday reached a broad agreement to cut development and other expenditures at all tiers of the federation and jointly create similar, but higher, fiscal space next year for additional “strategic needs”.

On Sunday, a PPP delegation, led by party chairman Bilawal Bhutto-Zardari, had expressed its reservations related to taxes during a pre-budget meeting with FM Dar.

During the meeting, FM Dar assured the PPP that their proposal would be incorporated into the budget.

The IMF has asked the Centre to introduce at least Rs430bn worth of additional budgetary measures in the upcoming budget, alongside a nearly matching amount of Rs430bn to be generated by the four provinces.

In this connection, the PPP had asked Dar for ways for the provinces to increase their tax revenues during the meeting.

PPP leaders also opposed new taxes and hoped the government would change its approach to taxation to provide relief to inflation-hit masses, asserting that the government should prefer a broader tax base instead of exerting pressure on the same class, which is already paying taxes.

Salient Features

• GDP growth target set at 4pc; average inflation projected at 8.2pc

• Income tax cut for those earning above Rs183,000 per month

• Withholding tax on foreign debit/credit card transactions slashed from 5pc to 0.5pc

• Taxes on sanitary pads, contraceptives completely withdrawn

• Final Tax Regime for IT, freelance exporters extended for three years until FY30

• 7pc raise in salaries and pensions of govt employees; 10pc increase in minimum wage proposed

• BISP budget raised 17pc to Rs838bn; coverage to expand to 12m families

• Rs71bn allocated for PM’s Apna Ghar housing scheme with 5pc mortgage facility

• National Artificial Intelligence Ecosystem Development Programme listed as a flagship $1bn initiative.

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Finance Minister Muhammad Aurangzeb presented the FY2026-27 budget in the National Assembly (NA) on Friday, during a session that began two hours late and was marred by loud protests from the opposition.

Aurangzeb prefaced the numbers with a note of thanks to leaders of the coalition parties supporting the federal government, as well as a rumination on Pakistan’s improved standing in the world, which he described as a culmination of events that started from last year’s Operation Bunyan-um-Marsoos and which peaked with Pakistan brokering a ceasefire between Iran and the US amidst a dangerous regional escalation.

The finance minister then delved into a long note on the government’s successes in keeping the public protected from the more devastating effects of the war, crediting the prime minister for taking ‘timely decisions’ that prevented fuel shortages and economic chaos.

After recapping some of the highlights from yesterday’s Pakistan Economic Survey report, and laying out his agenda for privatisation of government entities, including power generation companies, distribution companies, banks, insurance companies and airports, the finance minister turned his attention to proposed reforms for the Federal Board of Revenue, which he described as necessary for a self-reliant economy.

Aurangzeb said the budget for the coming year had been prepared with a “clear and purposeful” strategy, and that the top priority was to increase production capacity and promote exports.

“For this reason, we are giving tax concessions to large industries and are providing resources to exporters through the Export Financing Scheme,” he added.

He further said initiatives had been taken to provide loans to farmers as “agriculture is the backbone of our economy”.

The finance minister said the government was also focused on increasing revenues through tax enforcement and compliance rather than increasing the tax burden on the people. “For this purpose, we are making changes to the compliance and enforcement mechanism and carrying out reforms in the FBR,” he said.

Given the uncertainty in the region and to ensure the country’s defence, “a significant increase has been made in the defence budget”, he said.

Details of the budget

The budget presented for fiscal year 2026-27 has an outlay of Rs18.8 trillion, of which Rs8,045bn will be set aside for markup payments, Aurangzeb explained as he introduced the proposals.

The finance minister said the economy was expected to grow 4 per cent in FY2026-27, and average inflation was expected to be recorded at 8.2pc.

He added that the fiscal deficit would be contained at 3.6pc of GDP, while a primary surplus of 2pc would be targeted by the government.

Tax revenue has been estimated at Rs15,264bn for FY-2026-27, which is 17.6pc more than the outgoing year’s Rs12,983bn, of which Rs8,848bn would go to the provinces.

Aurangzeb said that the federal and provincial governments had agreed on a mechanism to jointly meet “some national imperatives”.

“Under this arrangement, the federal and provincial governments together will receive a share from the Federal Divisible Pool in accordance with the National Finance Commission (NFC) Award as per the constitution,” Aurangzeb explained.

“The federal government’s expected revenue receipts for FY 2026-27 from the Federal Board of Revenue are projected at Rs15,264 billion. Under this arrangement, for strategic national purposes […] a minimum of Rs13,350 billion has been kept protected.

“From a minimum of Rs13,350 billion up to Rs15,264 billion, the amount to be received [by the provinces] will be given back to the federal government as grants under Article 164 of the Constitution for the completion of strategic national requirements. This arrangement will come into effect for FY 2026-27 and for the fiscal years,” the finance minister said.

“The country will experience the positive impact of this mechanism,” he said, adding that the mechanism was agreed on the basis of “cooperative federalism” and without affecting the constitutional rights of provinces.

This mechanism will be “renewed along similar lines with provinces’ consultation for FY28 and FY29”, he added.

The minister then thanked the provincial governments for “stepping up for the national cause”.

He added that the federal non-tax revenue was budgeted at Rs5,336bn and net federal revenue was budgeted at Rs11,751bn.

Moreover, Rs1,000bn had been set aside for the federal Public Sector Development Programme (PSDP). After the inclusion of funds set aside for state-owned enterprises and public-private partnership, this amount increases to Rs1,451bn.

He said that Rs2,224bn was set aside for provincial development schemes and Rs451bn for investment by state-owned enterprises.

“This distribution reflects the division of responsibilities under the 18th Amendment, under which provinces are largely responsible for the social sector and the federal government focuses on strategic projects,” he added.

The finance minister said Rs3,000bn had been allocated for defence and Rs1,071bn for civil administration expenditures. While sharing these figures, Aurangzeb noted that defence was the government’s topmost priority.

He added that the federal government’s current expenditure was budgeted as Rs17,495bn.

He said Rs1,169bn was set aside for pension payments and Rs1,091bn for subsidies in power and other sectors.

The finance minister announced that Rs2,680bn was set aside for the Benazir Income Support Programme, Azad Jammu and Kashmir, Gilgit-Baltistan and merged districts of Khyber Pakhtunkhwa.

He also announced that a reduction in the income tax had been proposed for four slabs. The government has proposed that those earning an annual income of between Rs2.2-3.2m be taxed at a maximum rate of 20pc instead of 23pc; those earning between Rs3.2-4.1m be taxed at 25pc instead of 30pc; those making between Rs4.1-5.6m be taxed at 29pc instead of 35pc; while those making between Rs5.6-7m be charged at a maximum rate of 32pc instead of 35pc.

He added that it had been decided to end the 9pc surcharge on the salaried class, adding that the super tax would be abolished for businesses earning between Rs150m and Rs500m annually, and it would be reduced from 10pc to 8pc for businesses whose income exceeded Rs500m.

Abolishing the tax on sanitary pads and contraceptives had also been proposed under the new budget, he added.

He also said that government employees’ salaries were being raised by 7pc, and a 7pc increase had also been recommended in the pensions of retired employees. It had also been proposed to increase the minimum wage by 10pc, he added.

‘Defence capability has reshaped strategic partnerships’

Aurangzeb began by thanking the allies of the ruling coalition, including PPP Chairperson Bilawal-Bhutto Zardari, whose participation earlier remained doubtful after his party expressed some reservations.

He said the budget was being presented at a time when the world listened to Pakistan and desired its friendship. “But this was not coincidental. It began when Pakistan gave a befitting response to India in May 2025.”

“This success was a result of decades-long professional training and preparedness,” he added. “Today, the world praises Pakistan’s defence capabilities. This is the reason that many countries are in contact with Pakistan to procure the fighter jets protecting our skies for their fleet.”

The finance minister said the country’s defence sector had become a source of foreign exchange earnings. “It is proof that strong defence is not just important for the country’s sovereignty but could also contribute to economic progress.”

“This defence capability has reshaped our strategic partnerships not just in the region but in the world,” he said, mentioning a defence pact signed between Pakistan and Saudi Arabia last year.

He said last year’s defence pact had laid a new foundation of Pak-Saudi ties, crediting Prime Minister Shehbaz Sharif and Chief of Defence Forces and Chief of Army Staff Field Marshal Asim Munir for it.

The finance minister also elaborated on Pakistan’s efforts for peace between the US and Iran. “Pakistan’s efforts are directed towards establishing long-term peace in the region through an agreement and restoring the transit of oil through the Strait of Hormuz,” he said.

Aurangzeb said Pakistan had “complete support” of China in these efforts, further highlighting the importance of ties between Islamabad and Beijing.

“Pak-China relations are an important part of our foreign policy. China is Pakistan’s most important trading partner,” he said.

Turning his attention to oil prices, he mentioned the US-Israeli war on Iran and noted that petrol and diesel had skyrocketed globally after the conflict.

He said that, however, local prices in Pakistan did not fully reflect this rise in prices. “Had the government passed on the entire burden to the people, the local prices would have been much higher,” he said, saying that the government has given people relief through subsidies of Rs128 billion.

The minister said that the current dispensation, led by PM Shehbaz, would be presenting its third budget.

Government’s success story

Before further elaborating on the budget for the upcoming fiscal year, he gave a roundup of the past two years. He said the GDP growth in the outgoing fiscal year was recorded at 3.7pc, growth in large scale manufacturing was recorded at 6.1pc and 4.1pc growth was witnessed in the services sector.

“The growth in LSM and services sectors is the highest in four years,” he added.

The minister said the size of the country’s economy had increased to $452bn, terming it a “new milestone”. Moreover, per capita income had increased to $1,901 from last year’s $1,751 and the policy rate had seen a “historic decline” over the past two years, he added.

Aurangzeb further said the country’s foreign exchange reserves had increased to $17bn from $4bn three years ago. “This gives us an import cover for three months.”

He added that remittances had reached $38bn in the first 11 months of the outgoing fiscal year, expressing hope that the figure would exceed $41bn by the end of FY26. “It will be the highest in history,” he said.

The minister said the tax-to-GDP ratio had increased to 10.3pc, rising by 2pc over a period of three years. Similarly, fiscal deficit to GDP ratio was expected to reach 4pc from 7.8pc in June 2023, he added.

He said the average inflation was expected to remain around 7pc in the outgoing year, adding that it would reduce with de-escalation between the US and Iran.

Aurangzeb further said the Pakistan Stock Exchange saw a record increase of 173,000 new investors over the past year.

The minister further said that reforms were underway in the Federal Bureau of Revenue, adding that FBR’s annual tax revenue was Rs7,200bn in FY2022-23. This had doubled in three years and was expected to reach Rs13,000bn by the end of this fiscal year, he added.

Moreover, he said the government had introduced loan schemes for small farmers and businesses.

PTI protest

As Aurangzeb was asked by NA Speaker Ayaz Sadiq to present the budget at the start of the session, opposition members — mainly the PTI — began shouting slogans and protesting loudly.

They were shouting “thief” when PM Shehbaz entered the hall.

However, Leader of the Opposition in the NA Mehmood Achakzai came to the PM and shook hands with him.

Meanwhile, PTI lawmakers surrounded the speaker’s dais, shouting slogans and holding placards that said, “Who will save Pakistan, Imran Khan”. Some other placards read: “Restore provinces’ rights” and “IMF budget unacceptable”.

During the protest, PTI MNA Shahid Khattak embroiled in a scuffle with some lawmakers from the treasury benches, compelling the security staff to intervene.

PTI lawmakers also tore the copies of the budget document and threw them towards the PM.

Bilawal eventually attends the budget session

Moments before the budget session was to begin, the PPP, which is the main ally of the ruling PML-N, said its chairperson Bilawal would not attend the sitting, but it also clarified that the party was not boycotting the session.

This was after some television channels aired reports that the party had decided to boycott the session.

“Some members will attend the session. The PPP will be a part of the budget process in the national interest,” the party posted on X. The post, however, was later deleted.

In a subsequent post, the party said Deputy Prime Minister and Foreign Minister Ishaq Dar and Law Minister Azam Nazeer Tarar had held a meeting with Bilawal at Parliament.

A third post by the party said that Bilawal was chairing a joint parliamentary meeting of the PPP, where the budget, Gilgit-Baltistan elections and the situation in Azad Kashmir were discussed.

The PPP and PML-N had held multiple rounds of talks ahead of the budget before they settled their issues on matters pertaining to the budget.

In the NA today, PPP members, including Shazia Marri, staged a protest before the budget presentation, demanding that the government provide Sindh its due share of water.

“Sindh is facing 48 per cent water shortage,” said a placard held by Marri. PPP members also surrounded the speaker’s dais for some time before returning to their seats. They raised the slogan “Give us water to drink and live”.

The PPP, which is in the government in Sindh, has been complaining of “unjust reduction” in the province’s water share by the Indus River Systems Authority.

Speaking to Geo News, Marri said that the party would only have “token participation” in the budget session, citing the PML-N’s “unreasonable” attitude.

“PPP has always cooperated in matters of national interest; however, PML-N has its own personal and political interests, and we cannot sacrifice our workers and voters for it,” she said.

She added that the PPP’s sole demand was that it be granted its rightful “political space”.

“Wherever PPP has the mandate, it should be respected,” she added, recalling that PPP had supported PML-N in forming the federal government.

“Do not conspire against PPP’s political space and give us our rightful mandate,” she warned.

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Header image: Finance Minister Aurangzeb delivering a budget speech at the National Assembly on Tuesday, June 12, 2025. — White Star

Twenty years ago, I asked whether Pakistan’s swelling working-age population would prove a demographic dividend or a demographic threat. The answer, I argued then, depended entirely on what governments chose to do, in education, health, and labour market policy, while the window remained open. That window ran from 1990 to roughly 2045 at that time. We are now 35 years into it.

The Economic Survey 2025-26, released on Thursday, offers the most current evidence on how the choice has been made. The government’s foreword celebrates GDP growth of 3.7 per cent, a historic primary surplus, and multi-year-high foreign exchange reserves. Fine. But macroeconomic stabilisation and the realisation of a demographic dividend are not the same thing, and a country that has been “stabilising” for 30 years without resolving its human capital deficit must at some point ask: stabilising for what exactly, and for whom?

The demographic dividend lives or dies in Chapters 10 through 12 of this Survey, i.e., the chapters on education, health, population and labour force. Read them carefully, and the celebration in the foreword becomes harder to sustain.

Our population

Pakistan’s population stands at 252 million, growing at 2.07pc annually. Some 56.9pc falls in the working-age group; 26.6pc is the youth cohort of 15–29 years. These are the proportions that define dividend potential. They are real, and, by a perverse irony, the window to capitalise on them has actually extended.

Earlier estimates placed the close of the demographic dividend around 2045; the slow pace of fertility decline has pushed that to roughly 2055, adding a decade to the opportunity. But this is not good news. A slower fertility transition means a larger, longer-sustained dependent population, more pressure on already strained services, and a dividend that can only be realised if investment in human capital accelerates, not defers, to match the extended timeline.

Health and education, the two sectors most essential to human capital development, command 1.6pc of national income from the state

Population growth is routinely treated as the problem to be solved, with family planning presented as the primary lever. That framing is too narrow, and the evidence does not support it. Population, education, health, and employment do not operate in a one-way causal chain; they are mutually constitutive. Better education, especially for girls, delays marriage and lowers fertility. Better health reduces child mortality and, with it, the precautionary demand for large families.

Better employment opportunities, particularly for women, change the calculus of childbearing entirely. Fertility rates do not fall because governments want them to. They fall when the conditions that make large families a rational response to poverty and insecurity are dismantled. The Survey’s numbers on education, health, and labour, read together, describe a country that has not yet dismantled those conditions.

Education investment

Every year of deferred investment in this cohort (or group of people of this shared demographic) compounds backward. The fertility transition continues on a “slow decline” scenario, the Survey’s own framing, which means the base of the population pyramid remains heavily loaded at 39.5pc under 15 years. The window is not yet closed. But it is not widening, and the investment to match it is not arriving.

Looking at education, we see the same gap. Pakistan’s Human Development Index rank is 168. Expected years of schooling, 7.9 years, is the lowest in the South Asian comparison table the Survey itself provides. Below Nepal. Below Bangladesh. Below Afghanistan. Mean years of schooling stand at a low 4.3 years.

Literacy stands at 63pc for those aged 10 years and above, going down to 54pc for women. In Balochistan, female literacy is 25 per cent in rural areas. These are populations the Survey simultaneously describes as the beneficiaries of the demographic dividend opportunity.

Among the school-age children, 28pc are out of school. In Balochistan, 45pc. The Net Enrolment Rate at primary level is 54pc nationally; at middle level it is 23pc; at matric level, 16pc. For girls in Balochistan at matric level, it is a depressing 3pc. The funnel is not narrowing through quality selection; it is narrowing through abandonment.

What does abandonment look like

The basic facilities data in the Survey confirm what that abandonment looks like on the ground: 15pc of Balochistan’s primary schools have electricity. Toilet availability in the province’s primary schools stands at a negligible 0.3pc. This is not an infrastructure footnote. This is where the demographic dividend is supposed to be forged.

Pakistan is spending less on education, as a share of national income, at the precise moment its largest-ever youth cohort passes through the school system

Education expenditure fell to 0.8pc of GDP in FY 2025, down from 1.5pc to 1.9pc in the preceding years documented in the same table. Pakistan is spending less on education, as a share of national income, at the precise moment its largest-ever youth cohort passes through the school system.

It is worth noting that the Survey’s discussion of provincial development programmes, i.e., figures for buildings constructed, schools upgraded, contracts awarded, is appropriately detailed. But none of it addresses the fundamental problem that what is being measured is input provision rather than learning outcomes. Another university building added to the existing over 270 is not a contribution to higher education per se. The quality of graduates it produces, the output, is what needs to be measured. Brick and mortar alone do not improve human capital.

The Survey’s concluding remarks on education call for “sustained investment,” “quality improvement,” and “aligning education with labour market needs.” These conclusions are correct. They are also indistinguishable from the conclusions of every Survey for the past twenty years. We are not failing to identify the problem. We are failing to treat it.

Health investment

Moving to health, we see some progress, but it has not closed the gap. Life expectancy improved from 66.5 to 67.8 years. Infant mortality fell from 60 to 47 per 1,000 live births. These are gains and should be acknowledged, but Pakistan’s infant mortality rate is double the South Asian average of 23.2 per 1,000 live births. Life expectancy trails the regional average by nearly five years. Public health expenditure is 0.8pc of GDP, precisely what education also receives, meaning together the two sectors most essential to human capital development command 1.6pc of national income from the state.

The nutrition data is where the macro stabilisation story meets its starkest counternarrative. Stunting in children under five is 33.6pc, above the South Asian average of 31.5pc.

Undernourishment affects 16.5 per cent of the population against a South Asian average of 11.7 per cent. Between 2018–19 and 2024–25, per capita consumption of pulses, meat, and milk all declined. Vegetable ghee consumption rose. Households are not substituting more nutritious foods; they are substituting cheaper ones. A nutritionally compromised cohort at early childhood ages does not generate the human capital the demographic dividend requires. The health chapter and the inflation chapter are about the same household, but the two chapters do not seem to be in dialogue with each other.

Not the right jobs to save

Labour earning constitutes the basis of the whole notion of demographic dividend. The Economic Survey’s labour market data present a paradox that deserves to be read slowly. Between 2020–21 and 2024–25, the employed labour force grew from 67.25 million to 77.2 million, i.e., ten million additional employed persons. This is real. But in the same period, the unemployed grew from 4.51 million to 5.9 million, and the unemployment rate rose from 6.3pc to 7.1pc. Both are growing. Unemployment is growing faster.

Manufacturing’s share of employment declined from 14.9pc to 14.8pc, effectively zero net industrial absorption of a dramatically larger workforce. The growth sectors are community and social services, and wholesale and retail trade: large, informal, low-productivity, low-wage. The demographic dividend’s promise is not jobs of any kind; it is productive employment that generates savings, taxation, and the intergenerational transfers that compound growth.

The Survey reports 762,499 workers registered for overseas employment in 2025, with 69.5pc going to Saudi Arabia. Remittances are valuable. But the Survey also presents a Saudi-Pakistan Human Resource Deployment Plan targeting 1.51 million annual Pakistani worker deployments by 2039. At what point does organised labour export at this scale stop being a bridge to domestic development and become a permanent substitute for it? The Survey does not ask. It should.

These conclusions are correct. They are also indistinguishable from the conclusions of every Survey for the past 20 years. We are not failing to identify the problem. We are failing to treat it.

In my 2008 paper, I wrote that if appropriate policies were not adopted, the dividend period would end “with no significant gains and a very complex situation to tackle, having an aging population that is uneducated, untrained and with little savings to rely on.”

The 2025-26 Survey confirms the trajectory. Literacy at 63pc. Education spending at 0.8pc of GDP. Unemployment rising. Protein consumption declining. Infant mortality continuing to exceed the regional average. Manufacturing stagnant. Twenty-eight per cent of children are out of school.

These numbers do not describe a society realising its demographic dividend. They describe one that has been promising to begin, for thirty-five years, while the window closes one year at a time. The Survey itself, in its concluding remarks across Chapters 10 through 12, is not unaware of the gap. Each chapter ends with a variant of the same prescription: “sustained investment,” “quality improvement,” “reducing regional disparities,” “aligning education with labour market needs.” The continuity of the diagnosis is, in itself, a diagnosis.

The government that produced this Survey achieved a primary surplus while cutting education spending as a share of GDP. It stabilised the exchange rate while child stunting remained above the South Asian average. These are not incidental contradictions. They are choices, made under real constraints, but choices nonetheless, with consequences that will be legible in productivity data a decade from now.

The dividend does not wait for stabilisation to be complete. It never has. And in a country that has been stabilising since before most of its youth cohort was born, it is worth stating plainly: a primary surplus built on a 0.8pc education budget is not a foundation. It is a postponement dressed as an achievement. The window is still open, just barely, and not for much longer, but it is still open.

https://www.dawn.com/news/2007120/economic-survey-2025-26-pakistan-trails-south-asia-region-in-most-health-benchmarks

• Rapid warming spikes sharply up north; AJK, GB, KP record highest annual temperatures in 65 years
• Extreme heat claims over 200,000 lives in Europe since 2022; El Nino threatens to compound weather extremes
• Monsoon delayed in India

ISLAMABAD: Pakistan recorded its second-warmest year in 65 years in 2025, intensifying extreme floods and creating a systemic risk to the nation’s economy, according to the Economic Survey 2025-26.

Pakistan’s hottest year was 2024, the survey reported 2025 as the second-warmest year in 65 years, marking consecutive years of record high temperatures.

The country experienced a national annual mean temperature of 23.9°C last year, 1.09°C warmer than the 22.8-degree average. Despite contributing less than 1pc to global emissions and 0.4 percent historically, Pakistan bears a disproportionately high burden of global climate change.

“Climate change is no longer a distant or abstract threat to the country but a present reality,” the survey stated, citing an escalating challenge to the economy and population.

Over the last 50 years, the annual mean temperature in Pakistan has increased by approximately 0.5°C, with projections indicating a further rise of 3 to 5 degrees by the end of this century. In 2025, northern regions warmed intensively.

Temperature anomalies reached 1.24°C in Gilgit-Baltistan, 1.29°C in Khyber Pakhtunkhwa, and 1.56°C in Azad Jammu and Kashmir recording their highest annual temperatures in 65 years.

Meanwhile, the country received 288.5 millimetres of rainfall in 2025, about 3pc below the long-term average of 297.6 millimetres.

Rainfall distribution remained uneven. Sindh, Punjab, and GB recorded above-average rainfall, while KP and Balochistan remained below average.

The monsoon season from July to September recorded rainfall 23pc above average, while the year started with significantly below-average rainfall during the January-March period.

These phenomena are accelerating glacial melt and altering monsoon dynamics, creating pronounced rainfall variability. Fewer rainy days with higher intensity have shifted monsoon patterns to the south, changing flood risks. This resulted in the 2025 floods affecting all provinces, mirroring the 2022 devastation.

However, the survey warned Pakistan may fail to fulfil its United Nations climate commitments due to constrained international financing.

The World Bank previously estimated baseline climate-resilient investment needs at $348 billion up to 2030, implying an additional requirement of approximately $217.7bn to meet the $565.7bn total investment needed.

‘Over 200,000 lives lost’

As Pakistan endures record temperatures, extreme heat is claiming lives globally. More than 200,000 lives have been lost to the “silent killer” of heat in Europe since 2022, the World Health Organisation said on Thursday, after a heat wave saw some countries record their highest-ever May temperatures.

“The impacts of climate change are a clear and present danger, and its most immediate and lethal manifestation is extreme heat,” said Hans Henri Kluge, the WHO’s Europe director.

Extreme heat severely impacts the elderly, young, and those with health issues, leading to dehydration and heatstroke. Most of the 200,000 deaths were preventable, according to Kluge, who noted this is just the beginning, as millions more suffer mentally and physically.

Kluge said Europe is “warming faster than any other continent”.

The WHO advises authorities to establish effective heat-warning systems. Kluge emphasised that individual efforts are insufficient against a systemic crisis, advocating for a coordinated, powerful institutional response.

El Nino arrives

Compounding these global weather extremes, the El Nino phenomenon has arrived, the US National Oceanic and Atmospheric Administration said Thursday. Scientists expect it to intensify into the end of the year, potentially reaching historic strength.

El Nino is a natural climate phenomenon that warms surface temperatures in the central and eastern equatorial Pacific Ocean, bringing worldwide changes in winds, rainfall, and erratic weather. Scientists fear it will exacerbate the heat of a planet already warming from burning fossil fuels.

“There is a 63pc chance of a very strong El Nino during November-January that would rank among the largest El Nino events in the historical record going back to 1950,” the NOAA advisory read.

Major events follow familiar patterns, including droughts across parts of the Amazon, Indonesia, and Australia, disrupted monsoons in India, and shifting rainfall.

UN Secretary-General Antonio Guterres urged the world to treat the weather as an urgent warning, stating, “El Nino conditions will pour fuel on the fire of a warming world”.

India monsoon slows

The anticipated disruptions are already manifesting regionally, as India is expected to receive below-average rainfall over the next two weeks. “Western disturbances” have slowed the progress of the annual monsoon, two senior weather bureau officials said on Thursday.

Nearly half of India’s farmland lacks irrigation, and about half the population earns its livelihood from agriculture. Lower rainfall could delay the planting of summer-sown crops.

The June-to-September monsoon typically begins lashing the southern state of Kerala around June 1 before covering the entire country by mid-July, but its onset was delayed by three days this year.

In June, India’s rainfall was 26.5pc below normal. The weather department predicts the monsoon season will bring 90pc of average rainfall, with June’s rainfall at 92pc due to El Nino.

With input from Agencies

Published in Dawn, June 12th, 2026

• Economic Survey shows major targets missed as Aurangzeb claims resilience amid three major shocks
• Says budget to offer incentives for agriculture, housing
• Over Rs900bn to be diverted for Centre’s strategic needs
• Centralised tax system, retailer model to be announced
• Oil price impact to continue next year
• Current account deficit falls to $252m; remittances may reach $41-42bn by year-end
• Fiscal deficit falls to 0.7pc of GDP; debt-to-GDP ratio drops to 68.5pc
• FBR recovers Rs94bn through digitisation, AI audits

ISLAMABAD: The freeze on provincial development programmes, expected to generate more than Rs900 billion in additional resources for the Centre’s strategic needs, will continue for a specific period beyond one year, Finance Minister Muhammad Aurangzeb said on Wednesday as he unveiled the Pakistan Economic Survey 2025-26, which showed missed targets across major economic sectors in the outgoing fiscal year.

Reviewing the economic report card, the minister said the economy grew by 3.7 per cent this year — almost the same as the 3.6pc reported at this stage last year, later revised down to 3.2pc — reflecting resilience and economic stability in the face of three major exogenous shocks: global trade and tariff challenges at the beginning of the fiscal year, floods in Pakistan and, finally, regional war-related pressures.

Aurangzeb, who was flanked by the ministers for planning and information, the minister of state for finance and the railways minister, said he would explain in detail in his budget speech the mechanism for utilisation of additional resources secured from the provinces through the development freeze.

Asked whether the understanding outside the National Finance Commission, formalised at the National Economic Council meeting a day earlier, was permanent or limited to one year, he said the arrangement would be for a specific period beyond one year.

The finance minister appreciated the Khyber Pakhtunkhwa government and the “impressive engagement” with Chief Minister Sohail Afridi during the NEC meeting on Tuesday. He also valued the contribution of Muzzammil Aslam, saying the IMF programme was not only an agreement of the finance ministry or the Centre but of the entire country.

The minister said the government would offer special incentives for agricultural productivity and the housing sector in the budget on Friday (today) and provide end-user interest rates in single digits for 10 years.

He said the trade policy for the auto sector had already been announced for five years to provide a forward-looking vision because domestic investment had to pick up before foreign investment could follow.

The minister said discussions with the IMF were progressing positively. He declined to comment on relief for the salaried class, saying the prime minister had given clear instructions on the sectors that needed to be focused on, including salaried individuals and documented businesses.

He said a new taxation operating model for retailers and a “faceless” tax system — a digital and centralised system involving no contact between officials and taxpayers — would also be announced in the budget.

Responding to a question on the contingency plan in case the Iran crisis prolonged, the minister said the oil import bill had an impact on Pakistan’s external account. He said the oil bill had increased by about $1bn in April and later dropped to about $500 million in May as government policies with regard to taxation took shape.

He said the impact of oil prices on energy would continue over the next year and the government had a contingency plan in mind.

Missed targets

Aurangzeb said the economic recovery was broad-based this year, with 3.7pc growth — the highest in the last three years — supported by 2.89pc growth in agriculture, 3.5pc in industry and 4.09pc in services.

Except for services, all targets were missed. The targets had been set at 4.2pc for GDP growth, 4.5pc for agriculture, 4.3pc for industry and 4pc for services. Large-scale manufacturing, he said, increased the most in the last four years to 6.1pc, while 16 out of 22 sectors showed positive trends.

The investment-to-GDP ratio came in at 14.38pc against a target of 14.7pc, while the national savings-to-GDP ratio stood at 14.13pc against a target of 14.3pc. The minister said not only investment and savings ratios, but also the revenue-to-GDP ratio remained low and should be in the “high teens”.

The minister said growth was on its way to the target at the start of the year, when only trade uncertainty was in the field, but two subsequent floods in August-September and the regional war in March tested Pakistan’s resilience. Still, Pakistan kept its journey from stability to growth on track, he said.

However, he said the reality was that Pakistan still had a long way to go and must stay the course of reforms and fiscal discipline.

He said the size of the economy increased by 11pc to a record Rs126.87 trillion from Rs114.04tr last year, while per capita income improved to $1,901 in the outgoing fiscal year from $1,751 in FY25, reflecting improved economic activity and income growth.

The finance minister said the current account deficit dropped to just $252m in the first 10 months of the year, down from $17.4bn in FY22, as remittances reached $4.25bn a month in May — the highest in the country’s history — and were well on their way to reaching $41bn to $42bn by year-end against a target of $39bn.

Exports faced challenges and were down by 5pc, mainly because of a $1.5bn decline in rice and sugar exports. Foreign exchange reserves held by the State Bank had already crossed $17.1bn and would touch $18bn to provide three months of import cover, a respectable level recognised globally, he said.

He said the fiscal deficit at 0.7pc of GDP in the first nine months was the best performance in decades and had come down from a peak of 8.4pc in FY22. This helped the primary balance reach 3.2pc of GDP in nine months, down from a 3.1pc primary deficit in FY22.

The minister said the debt-to-GDP ratio had fallen to 68.5pc this year, down from 75.2pc in FY23 and 70.7pc in FY24, meaning that debt sustainability was also improving.

The minister said FBR revenue collection increased by more than 10pc this year, adding that the revenue agency recovered Rs60bn in additional revenue from the cement and sugar sectors through digitisation and another Rs34bn through artificial intelligence-based audits of 800 high-risk cases. This would be expanded to other sectors in the next budget.

He said he welcomed criticism over a new scheme for traders but noted that 3m to 4m small traders were outside the tax net and a start had to be made somewhere.

Responding to a question on why the success stories he cited had not benefited the common man or led to higher growth, the minister said growth could be achieved in three months by pumping liquidity into the system, but that would not be sustainable, as past experience had shown.

Published in Dawn, June 12th, 2026

ISLAMABAD: National poverty rate has surged by seven per cent, pushing approximately 27 million additional people into financial distress over the last six years and bringing the total number of the impoverished population of the country to 70m, according to the Economic Survey 2025-26.

The survey figures show that poverty was 21.9pc in 2018-19 which increased to 28.9pc in 2024-25. Poverty remained significantly higher in rural areas. Rural poverty increased from 28.2pc to 36.2pc, while urban poverty increased from 11pc to 17.4pc over the same period.

At the provincial level, poverty increased across all major provinces. In 2024-25, poverty was estimated at 23.3pc in Punjab, 32.6pc in Sindh, 35.3pc in Khyber Pakhtunkhwa, and 47pc in Balochistan. In 2018-19, the corresponding rates were 16.5pc, 24.5pc, 28.7pc, and 41.8pc, respectively. Balochistan continued to record the highest poverty incidence, while Punjab remained the lowest among the four provinces, the survey says.

The surge in poverty is attributed to prolonged economic shocks, including record-high inflation, currency depreciation, IMF stabilisation measures, catastrophic climate events like floods and the Middle East conflict. The adverse situation has weakened people purchasing power, raised food insecurity and strained remittance-receiving families, the survey says.

The updated estimates also indicate a rise in inequality. The national Gini coefficient increased from 28.4 in 2018-19 to 32.7 in 2024-25. The increase was visible in both urban and rural areas. Urban inequality rose from 31.0 to 34.4, while rural inequality increased from 23.4 to 36.6 during 2018-19 and 2024-25.

This suggests that the recent rise in poverty was accompanied by wider disparities in income distribution. Provincial inequality also moved upward over the same period. In 2024-25, the Gini coefficient stood at 32.0 in Punjab, 35.9 in Sindh, 29.4 in KP, and 26.5 in Balochistan.

In 2018-19, the corresponding values were 28.4, 29.7, 24.8, and 21.0. The provincial pattern indicates that inequality increased across all provinces, with Sindh recording the highest level in 2024-25. These results suggest that the recent pressures on household welfare were accompanied by widening disparities in income distribution.

According to the survey, Pakistan’s national poverty estimates are based on the cost of basic needs (CBN) approach, which has remained the standard framework for estimating consumption-based poverty.

Under this approach, the poverty line represents the minimum expenditure required to meet essential food and non-food needs.

Published in Dawn, June 12th, 2026

• Renewables, hydel and nuclear together now account for more than half of installed generation capacity
• PPIB has facilitated 102 IPPs, attracting over $35bn in foreign investment

LAHORE: Pakistan’s energy sector recorded steady improvement during the first nine months of the current fiscal year, with hydel, renewable and nuclear sources overtaking thermal power in installed generation capacity for the first time, says the Pakistan Economic Survey.

Citing relevant figures, it highlights a gradual shift toward cleaner, indigenous energy sources as the government pursued policies to improve energy security, affordability, and sustainability while reducing dependence on imported fuels.

Total installed electricity generation capacity increased to 49,651 megawatts (MW), up from 45,782MW a year earlier. Hydel, renewable and nuclear sources collectively accounted for 50.8 per cent of installed capacity, surpassing thermal power, whose share declined to 49.2pc from 56.7pc a year ago.

During July-March, Pakistan generated 92,835 gigawatt hours (GWh) of electricity, with hydel, nuclear and renewable sources contributing 53.1pc of total generation, underscoring continuing drift towards cleaner energy.

Electricity consumption rose by 3.8pc to 83,143GWh during the period under review. Households remained the largest consumers, accounting for 47.5pc of total power usage, while industrial demand strengthened, with its share rising to 31.5pc.

In contrast, electricity consumption in the agriculture sector fell sharply by 42.3pc, a decline the survey attributed to the growing adoption of solar-powered alternatives and changing irrigation practices.

The Private Power and Infrastructure Board (PPIB) continued to attract investment in the sector, facilitating the development of more than 102 independent power producers (IPPs) with a combined capacity exceeding 25,800MW. These projects have brought over $35 billion in foreign investment into the country.

Among the notable developments during the outgoing fiscal year was a 32MW bagasse-based power plant that commenced commercial operations in October 2025. Work also continued on a 100MW solar project in Gilgit-Baltistan, a 40MW power project in Gwadar, solarisation of water infrastructure in the port city and the installation of solar systems at 397 health facilities across the country.

The survey noted that Thar coal remained an important component of Pakistan’s energy security strategy. Five Thar coal-fired power projects with a combined capacity of 3,300MW are currently operational, while efforts are underway to replace imported coal with indigenous Thar coal at major power plants established under the China-Pakistan Economic Corridor (CPEC).

Nuclear power: Pakistan’s six operational nuclear power plants, with a combined capacity of 3,530MW, generated more than 17,133GWh of electricity during the first nine months of FY2026. According to the survey, nuclear power helps avoid an estimated 16-18 million tonnes of greenhouse gas emissions annually.

Construction of the 1,200MW Chashma-5 nuclear power plant is also progressing and is expected to be completed by 2030-31.

Gas sector: Indigenous natural gas continued to play a significant role in Pakistan’s energy basket during FY26, contributing 29.3pc to the country’s primary energy mix, though the nation remained heavily dependent on imported liquefied natural gas (LNG) amid declining domestic reserves.

Average gas consumption during July-March FY26 stood at 2,929 million cubic feet per day (mmcfd), including 613mmcfd of imported re-gasified liquefied natural gas (RLNG), according to the survey.

Despite dwindling indigenous supplies, gas utilities expanded their networks and provided more than 149,000 new connections during the first nine months of the fiscal year.

The survey noted that Pakistan’s reliance on imported LNG persisted, with domestic gas fields continuing to see declining production, adding to concerns over long-term energy security and import dependence.

LPG sector: The liquefied petroleum gas (LPG) sector also recorded growth, with total supplies re­­aching around 1.97 million tonnes during the period under review.

Pakistan currently has 11 LPG producers, 382 marketing companies and approximately 6,200 authorised distributors. Investment worth nearly Rs10.36bn was made in LPG infrastructure during the period, reflecting efforts to strengthen supply chains and improve access to cleaner fuels.

Coal consumption: Coal consumption increased to 21.4m tonnes, driven primarily by the power sector.

Power generation accounted for 59.6pc of total coal usage, underscoring the fuel’s continued importance in the country’s electricity mix. Brick kilns consumed 20.8pc of total coal supplies, while cement manufacturers and other industries accounted for the remaining 19.6pc.

Published in Dawn, June 12th, 2026

• 5G spectrum auction rakes in $510m; broadband penetration surges to 64.2pc; telecom revenues reached Rs837bn; IT & telecom sector’s export remittances climb to $3.38bn
• 161.6m mobile handsets locally manufactured due to heavy import duties

ISLAMABAD: Pakistan’s information technology and telecommunication sector marked significant expansion during the fiscal year 2025-26, driven by a $509.6 million 5G spectrum auction and a surge in broadband penetration to 64.2pc.

According to the Economic Survey 2025-26, the outgoing fiscal year saw sweeping impro­vements in accessibility and connectivity.

Cellular mobile services now cover 92pc of the population, with 3G and 4G signals reaching over 81pc of the country’s area. Broadband penetration has nearly doubled from 32.6pc in 2019.

Telecom revenues reached Rs837bn in 9MFY26, bolstered by $567 million in sector investments. The industry contributed Rs285bn to the national exchequer through taxes and duties. Total telecom subscriptions, encompassing both mobile and fixed-line services, hit 207.22m in March.

To further expand internet access, the National Assembly on Thursday approved the Pakistan Telecommunication (Reorganisation) (Amendment) Act, 2026.

The legislation permits companies to lay optic fiber cables free of cost across any government-owned land and housing societies.

This aligns with the National Fiberisation Plan, advanced by the Pakistan Telecommunication Authority and the Ministry of IT and Telecommunication, to support 5G and emerging digital services.

During the fiscal year, the PTA also approved the adoption of Wi-Fi 7 in the 6 GHz band, positioning Pakistan among the leading Asia-Pacific nations to formally adopt the next-generation technology.

The upgrade promises higher throughput and ultra-low latency for advanced applications like 8K streaming and industrial automation.

Pakistan also bolstered its international connectivity. The country’s network currently relies on six submarine cable systems and one terrestrial cable, providing a total installed capacity of 17.7 terabits per second. Four high-capacity submarine cables — AFRICA-1, SMW-6, 2AFRICA and the Makran Gulf Gate­­way — are planned for future integration.

Domestically, local manufacturing thrived amid heavy duties on imported handsets. Pakistan produced 161.6 million mobile handsets up to March 2026. This included 67 million smartphones, accounting for 71.6pc of total production and reflecting a rapid decline in feature phone demand as 4G services expand.

Meanwhile, information and communication technology export remittances surged 19 pc, reaching $3.38bn between July and March. The Securities and Exchange Commission of Pakistan currently registers 34,420 IT and IT-enabled services companies.

Looking ahead, the Economic Survey highlighted a strong focus on human resource development. Initiatives like the National Semiconductor HR Development Programme and the Semiconductor Chip Design Upskilling pilot project aim to position Pakistan within the global semiconductor market, projected to exceed $1tr by 2030.

Approximately 70pc of this growth is driven by rapid advancements in computing and data storage, automotive electronics, wireless connectivity, power management etc.

“Rising ICT exports, a thriving freelance workforce, and continued expansion of digital infrastructure highlight Pakistan’s growing presence in the global technology landscape,” the survey concluded.

Published in Dawn, June 12th, 2026

ISLAMABAD: Provincial fiscal operations provided significant support to the federal government in improving the ove­rall fiscal situation in the outgoing year.

“The dedicated efforts at the provincial level for effective resource mobilisation and prudent expenditure management triggered higher growth in provincial revenues relative to expenditures,” the Economic Survey of Pakistan 2025-26 acknowledged.

All four provinces collectively achieved the highest-ever surplus of Rs1,636.1 billion in July-March, compared to Rs1 trillion last year. Provincial revenue incr­eased by 12.9pc during the same period.

Sajid Amin Javed, Deputy Executive Director at SDPI, said the Centre was “fair” to urge provinces to share fiscal responsibility, but should lead by example by broadening its own tax net. He noted that since the federal government cannot constitutionally compel provinces to relinquish their NFC share, it has resorted to a “moral language of shared responsibility.”

He stressed that the fiscal relationship between Centre and provinces must be reciprocal. Given that provincial tax collection remains well below par, he recommended revamping the NFC formula to incentivise revenue generation and reduce the weight of population as a distribution criterion. He further cautioned that the current freeze on NFC funds is a temporary measure, and that a lasting solution must be discussed at the 11th NFC meeting.

A former provincial finance minister said the development budgets and SOE expenses of both the Centre and provinces needed “serious review” to create fiscal space and provide the public relief from over-taxation. He pointed to government departments that had become redundant after the 18th Amendment, but continued to burden federal and provincial exchequers. “Just look at the state’s splurge in excess of 65 per cent over the last three years on salary increases and perks and privileges — well above inflation — and its ‘bloated size’ even after the 18th Amendment, while it was tightening the belt of the rest of the population,” he added. By not addressing the fundamental flaws in the economy, this model will remain unsustainable.

Provincial tax collection rises

The provinces own tax collection and development spending are expected to rise by nearly 26pc and 39.6pc respectively during the outgoing financial year, according to the survey.

The size of provincial budgets is estimated at Rs9,913.6 billion in FY2026, up from revised estimates of Rs8,159.9bn in FY2025 — a growth of 21.5pc. Current expenditures are projected to increase by 14.8pc while development spending is expected to rise sharply by 39.6pc. Total revenues were budgeted at Rs10,127.6 billion, showing growth of 17.9pc.

Under the NFC Award, federal transfers to provinces were budgeted at Rs8,206 billion in FY26. In the first three quarters, these rose 10.7pc to Rs5,630.8 billion. Province-wise shares were: Punjab Rs4,076bn, Sindh Rs2,043.8bn, KP Rs1,342.8bn (inclusive of 1pc for war on terror), and Balochistan Rs743.2bn.

Provincial own revenue receipts grew 28.3pc to Rs1,138.2 billion, with tax collection up 25.8pc to Rs860.7 billion and non-tax revenue up 36.7pc to Rs277.5 billion — supported by higher receipts from hydroelectricity profits, mark-up, and other sources. Federal transfers nonetheless remained the dominant source, contributing around 78pc of total provincial revenues.

Published in Dawn, June 12th, 2026

ISLAMABAD: The federal government’s demand that provinces share the burden of the Federal Board of Revenue (FBR) collection shortfalls underscores an unsustainable fiscal strategy. The honest answer is that it is mostly political economy, not administrative incapacity, analysts say. There are some structural issues as well, but political economy remains at the heart of the problem.

The Pakistan Economic Survey FY26 lists reforms ranging from digitalisation to enforcement that have yielded some gains; the larger question remains whether these measures can bridge the revenue gap without revisiting structural imbalances. Answering this question requires political will rather than wholly blaming the implementation organisation.

The retail sector, despite its 17.8 per cent share in GDP, remains largely outside the tax net due to political considerations. At the same time, the petroleum sector, valued at Rs6-7 trillion, also lies outside the tax ambit, even as the federal government aims to collect nearly Rs1.5tr through the petroleum development levy (PDL) in FY26. For FY27, the target for PDL is projected at Rs1.7tr, alongside expectations that provinces will give up between Rs1.3tr and Rs1.7tr to cover FBR shortfalls.

Without entering into technicalities, this effectively means that the federal government will withhold approximately Rs3tr from the provinces over and above the National Finance Commission award, without formally amending the accord.

Retail and petroleum sectors remain largely untaxed; fiscal targets are increasingly met through levies and provincial surpluses

This raises a fundamental question: is this a sustainable solution to the revenue collection problem, or merely a short-term measure to meet debt-servicing and defence spending requirements under the International Monetary Fund (IMF) programme?

Dr Ali Hasanain, associate professor of economics at Lums, said successive governments, this one included, have repeatedly announced retail registration schemes, and they keep collapsing at the same point. Traders are an organised, politically connected constituency that every ruling coalition needs, while the salaried class is not.

As a result, the path of least resistance is always to squeeze those already in the net, including salaried taxpayers, the corporate sector, and consumers, through indirect taxes, because withholding agents and employers do the collection for free.

“Calling it ‘inefficiency’ lets policymakers off too easily; the FBR’s capacity problems are real, but the binding constraint is that broadening the net imposes concentrated political costs while raising rates on existing payers imposes diffuse ones,” he said.

Development economist Dr Abid Qayum Suleri similarly argued that the FBR’s failure to bring sectors such as retail fully into the tax net is not simply an administrative problem. It reflects a combination of weak enforcement and lack of political will.

The same problem appears in federal and provincial finances. The survey shows that provinces generated a surplus of Rs1.64tr during July to March FY26, compared with Rs1.05tr last year, Dr Suleri said. Such surpluses help Islamabad meet consolidated fiscal targets, but repeated dependence on provincial savings can weaken the spirit of fiscal federalism if it squeezes provincial spending on health, education, water, climate resilience and local infrastructure.

For former FBR chairman Dr Irshad Ahmed, the current fiscal model is in a state of trap. “This time they begged provinces, but what will they do next time? How long will they survive on loan?” He also argued that the federal government is not willing to reduce its own protocols and expenditures.

On the ongoing reforms, he maintained that what is being done is “old wine in a new bottle,” which has already been tried and failed and will definitely fail again.

The survey does point to some tangible outcomes: tax returns filed rose 91.5pc to 7m, and net tax chargeable nearly doubled to Rs3.73tr. Production monitoring in the sugar sector generated Rs37bn in additional annual collection, while fake sales tax claims worth Rs9.8bn were blocked.

More than 25,000 taxpayers joined the digital invoicing system, covering a combined turnover of Rs39.3tr. Point-of-sales registered retailer turnover rose to Rs2.9tr, while AI-based audit selection identified over 200 cases involving Rs13.3bn. Customs enforcement against petroleum smuggling yielded an additional Rs284bn.

While the gains are real and meaningful, they are made within a deliberately constrained perimeter. Without addressing underlying incentives and structural imbalances, incremental reforms are unlikely to produce durable outcomes.

Published in Dawn, June 12th, 2026

ISLAMABAD: The government on Thursday announced a decline in tax exemptions in the outgoing fiscal year — the first such reduction in recent years — according to the Pakistan Economic Survey 2025-26 unveiled by Finance Minister Muhammad Aurangzeb.

The survey noted an unprecedented 3.37pc fall in tax exemptions, bringing the cost down to Rs2.353 trillion in FY26 from the downward-revised Rs2.434tr recorded in FY25.

In FY25, the government had initially reported exemptions at Rs5.84tr, a sharp 51pc rise from Rs3.879tr a year earlier. However, the figure was later revised to Rs2.434tr, with the survey offering no explanation beyond a reference to “errata”.

The decline in the cost of tax exemptions comes after seven consecutive years of increases, despite repeated government assurances that such concessions would be gradually curtailed under the International Monetary Fund programme.

Economic Survey reports a rare decline in concessions after seven years’ increases

Last year, the FBR had projected a sharp rise in the cost of tax exemptions, largely due to a Rs1.796tr waiver on domestically supplied and imported petroleum, oil and lubricants (POL) products.

In the latest survey, however, the government omitted this figure. However, the government had already planned to raise more than Rs1.4tr through the petroleum development levy (PDL).

The exemption is essentially fiscal in nature — provinces receive no share from this amount, while the federal government recovers the full proceeds through the PDL, which does not form part of the divisible pool.

As a result, the federal government bears minimal actual cost, but provinces are excluded from revenue sharing on PDL collections.

The value of tax exemptions has increased over the years. In FY18, it was Rs540.98 billion, rising to Rs972.4bn in FY19, Rs1.49tr in FY20 and then easing slightly to Rs1.314tr in FY21, before surging to Rs1.757tr in FY22. These tax concessions were extended to all sectors to promote industrialisation.

The Economic Survey 2025-26 showed a slight increase in income tax exemptions, a decline in customs exemptions, and a modest rise in sales tax concessions.

The fall in overall tax concessions comes at a time when the FBR is struggling with sizeable revenue shortfalls, marking the third consecutive year of missed collection targets.

Tax exemptions refer to revenue foregone by the state across various categories for different industries and other groups. This is mainly due to exemptions on raw materials and semi-finished products, as well as concessions for specific sectors aimed at reducing input costs for export-oriented industries.

Additionally, specific individuals are eligible for tax exemptions on certain perks and privileges.

The total sales tax exemptions increased by 2.91pc to Rs1.273tr from Rs1.237tr in FY25.

The cost of zero-rated exemptions under the Fifth Schedule fell to Rs8.774bn in FY26 from Rs81.108bn in FY25, a decline of 89.18pc. This is because the government reduced the zero-rated regimes for five export-oriented and some other sectors.

For local supplies, the cost of exemptions under the Sixth Schedule decreased to Rs305.628bn in FY26 from Rs330.545bn in the previous year, a decline of 7.54pc. This is due to a massive withdrawal of exemptions on items under that schedule.

Published in Dawn, June 12th, 2026

KARACHI: The Paki­stan Stock Exchange (PSX) outperformed most major global markets in the first nine months of the outgoing fiscal year, with the KSE-100 index rising by 18.4 per cent. However, geopolitical tensions and foreign selling eroded some of these gains in the final quarter, according to the Economic Survey 2025-26, released on Thursday.

The index climbed from 125,627 points at the close of FY25 to 148,743 points by the end of March, having touched an all-time high of 189,167 points on Jan 23 — a level from which it shed more than 40,000 points over the following two months.

The survey, released by Finance Minister Aur­angzeb on the eve of the federal budget for 2026-27, attributed the robust PSX performance to improving macroeconomic fundamentals, easing inflation, declining interest rates, strong corporate earnings and the successful review of the International Monetary Fund’s Extended Fund Facility programme, along with subsequent tranche disbursements.

However, the momentum faded from early February as tensions with Afghanistan, the escalating conflict in the Middle East, higher global oil prices, foreign selling, domestic profit-taking and the seasonal slowdown during Ramazan dragged the index down from its January peak.

Market capitalisation rose to Rs16.53 trillion ($59.23 billion) by March 31, up 8.5pc — or Rs1.3tr — from Rs15.24tr at the end of June 2025. The market’s dollar value had peaked at $74.44bn in January before retreating alongside the index.

The PSX witnessed 11 news listings during the outgoing fiscal year, reflecting growing mom­entum in Pakistan’s capital market as both institutional and retail participation continue to stren­gthen despite global economic uncertainties.

In a regional comparison, the KSE-100’s 18.4pc return placed it among Asia’s better-performing markets, behind South Korea’s KOSPI, which surged 64.5pc, Thailand’s SET (32.9pc), Vietnam’s VN30 (23.8pc) and Singapore’s Straits Times (23.2pc), but well ahead of the MSCI Emerging Mar­ket Index (13.8pc). India’s Sensex declined 13.9pc over the same period.

The debt market also remained active. The government has raised Rs5.1tr through 32 auctions of debt securities conducted via capital market infrastructure since December 2023, while sovereign sukuk issuances worth Rs1.86tr were carried out during the period under review.

Published in Dawn, June 12th, 2026

ISLAMABAD: The literacy rate for individuals aged 10 and above in Pakistan rose from 61 to 63 per cent, while spending on education faced a decline, according to Economic Survey 2025-26.

It stated that male literacy was 73pc and female at 54pc, reflecting a gradual progress and narrowing gender gap.

Urban areas continued to have higher literacy rates with a total of 74 per cent (81 per cent for males and 68 per cent for females), while rural areas had a lower rate of 55 per cent (67 per cent for males and 44 per cent for females).

Rural female literacy showed the most significant improvement. Punjab recorded the highest literacy rate at 68 per cent, followed by Sindh and Khyber Pakhtunkhwa, both at 58 per cent. Balochistan had the lowest rate at 49 per cent. The urban–rural divide persisted with urban Punjab at 78 per cent and rural Sindh at 39 per cent. Overall, the data highlighted steady but uneven progress with rural female literacy playing a key role in the observed improvements, despite continuing regional and gender disparities.

Expenditure

The survey stated that education expenditure stood at Rs962 billion during the financial year 2025 compared to Rs1251.06 billion in the previous year. Expenditure in year 2024-25 remained 0.8pc of GDP while in year 2022-23 it was recorded at 1.5pc of GDP. In 2021-22, it was 1.7pc of GDP, showing a constant decline.

In the year 2020-21, education expenditure was recorded at 1.4pc of GDP, while it was 1.9pc of GDP in 2019-20.

Meanwhile, the survey highlighted the issue of out-of-school children (OOSC), stating that OOSC in Pakistan had declined from 38 per cent in 2023 (male: 35 per cent, female: 42 per cent) to 28 per cent in 2025 (male: 25 per cent, female: 31 per cent), demonstrating significant progress across all provinces particularly in Balochistan where the proportion decreased from 69 per cent to 45 per cent, followed by Sindh (47 per cent to 39 per cent), Punjab (32 per cent to 21 per cent), and Khyber Pakhtunkhwa (30 per cent to 28 per cent).

Highlighting the issue of missing facilities, the report said around 65 per cent of schools in the country had access to electricity though there were disparities among provinces. Punjab and ICT have higher access, while Balochistan reports substantially lower coverage and therefore requires focused attention. Punjab and ICT also lead in the percentage of primary schools with water facilities, while Balochistan and AJK face challenges with only 23 per cent coverage. Toilet access in schools varies widely among provinces. Pakistan shows moderate access to boundary walls in schools with Punjab, Khyber Pakhtunkhwa and ICT at the forefront. As schools progress to higher levels, the availability of electricity, drinking water, toilets and boundary walls improves.

“Education is the foundation of a better future for every child and a strong society. Pakistan’s large youth bulge can be transformed into a productive resource through effective investment in education. However, this requires improved access to quality and equity across all levels of education. In the face of demographic changes, technological advancements and governance challenges, education remains a vital tool for social stability and sustainable development. Recognising its importance, the government continues to prioritise the education sector through policy reforms and targeted investments,” read the report.

Published in Dawn, June 12th, 2026

LAHORE: The devastating floods of 2025 caused losses amounting to Rs822bn, claimed 1,039 lives, and displaced more than four million people, according to the Economic Survey 2025-26 released on Thursday.

The unprecedented disaster dealt a severe blow to the economy, forcing policymakers to revise the country’s real GDP growth target downward from the originally projected 4.2 per cent to a range of 3.5 to 3.9 per cent.

Describing the calamity as a “major downside driver to Pakistan’s economic growth,” the survey highlighted the enormous human and economic costs of the historic monsoon season.

The floods were triggered by highly unusual rainfall between July and September 2025. National average rainfall reached 172.8mm, 23pc higher than the normal level of 140.9mm.

The disaster caused Rs822bn losses across the country, displaced 4m people

The crisis reached its peak in late August when accelerated glacier melt, combined with heavy monsoon rains, led to the rare simultaneous flooding of the Sutlej, Ravi and Chenab rivers. The resulting compound floods wreaked havoc across Punjab, which suffered the greatest impact.

Punjab alone incurred losses of Rs631bn– more than 76pc of the nationwide damages – and accounted for 77pc of all deaths and displacements caused by the disaster.

According to the survey, infrastructure losses across the country totaled Rs307bn. Damages included Rs187bn to road networks, Rs91bn in housing losses, and more than Rs28bn in losses to bridges, water infrastructure and energy systems. In all, 229,763 houses were either severely damaged or completely destroyed.

The disaster also sent shock waves through the labour market, with more than 200,000 people losing their jobs, leading to a corresponding increase in unemployment.

Agriculture emerged as the worst-affected sector, suffering losses estimated at Rs430bn. Crop damages alone amounted to Rs422bn, with cotton and rice among the hardest-hit crops.

Despite the massive destruction, the Economic Survey noted that the agricultural sector demonstrated remarkable resilience, recording growth of 2.89pc in FY2026. It attributed this performance to timely government support measures.

The crop sector rebounded to post growth of 1.44pc, compared with a contraction of 1.01pc last fiscal, as Kharif crop performance turned out better than initially anticipated.

It also cited international validation to its estimates when it referenced EM-DAT—The International Disaster Database. In its update issued December last year, the international body reported broadly similar figures, estimating total damages at around $3bn, recording 1,037 fatalities and putting the number of affected people at 6.9m.

The survey also mentions official efforts to control damages. In the aftermath of the disaster, government institutions and humanitarian organisations launched extensive relief operations.

The Pakistan Poverty Alleviation Fund (PPAF) disbursed Rs2.747bn to support more than 136,700 vulnerable households. The organisation also set up 124 medical camps, which treated 47,926 patients, and deployed 220 emergency response teams.

As emergency operations wind down, the government has shifted its focus towards long-term climate resilience and disaster preparedness. Ongoing initiatives include the rehabilitation of protective embankments, construction of small dams, and stricter enforcement of floodplain zoning regulations aimed at reducing future flood risks.

Published in Dawn, June 12th, 2026

WHILE launching the Economic Survey 2026, Finance Minister Muhammad Aurangzeb told a hopeful story of economic recovery.

Indeed, the numbers support his words. Going from negative growth to 3.7pc is impressive as is reducing inflation levels. The current account surplus, albeit fragile, must also be lauded. The government deserves credit for stabilising an economy under pressure by floods, rising energy prices and trade uncertainty amid regional conflict.

However, there is another story behind these numbers, and it is a harder one. Stabilisation, though welcome, is not transformational. The distance between the two is precisely where Pakistan’s future hangs in the balance.

Growth may be at a four-year high, but investment as a share of GDP remains near multi-decade lows. An economy that does not invest cannot grow sustainably; it merely consumes existing capacity at a slightly higher rate. Some MNCS are reinvesting, but not out of confidence in the country’s economic potential; they are protecting existing positions in a market they cannot easily exit.

Behind closed doors, the same executives celebrating Pakistan’s ‘recovery’ describe an environment consumed by tax disputes, regulatory friction and bureaucratic attrition. That is not the profile of a country attracting transformative capital. Local investors, which the minister described as the true barometer of domestic confidence, are not investing at scale.

The reasons are structural and familiar: punishing energy costs, borrowing rates that make productive investment economically unattractive, a tax regime that rewards evasion over compliance, and a regulatory environment hostile to enterprise despite some improvement. Eleven stock exchange listings are welcome, but they are a drop in the ocean.

The survey takes pride in the breadth of this recovery, with agriculture, industry, services and large-scale manufacturing growing simultaneously. This is better than lopsided growth. But breadth without depth is a limited achievement. Growth driven by productivity gains compounds over time and builds lasting wealth.

Growth driven by consumption, favourable commodity cycles, or a low base simply marks time. Pakistan’s farm sector — among the region’s largest — continues to import food, cotton and basic inputs it should be producing competitively at home and exporting.

That paradox alone encapsulates the productivity crisis at the heart of the economy. LSM growth hitting a four-year high may be welcome but it largely reflects IMF-mandated demand recovery rather than genuine productivity or efficiency gains. The next external shock will expose the same vulnerabilities all over again.

Unless productivity becomes the dominant target of economic policy, Pakistan will continue to oscillate between crises and fragile recovery, never quite escaping the periodic IMF bailouts.

The Economic Survey tells the story of a country that has survived another difficult year. The more important story of whether Pakistan can finally break the cycle is waiting to be written.

Published in Dawn, June 12th, 2026

The government unveiled the Pakistan Economic Survey (PES) for FY2025-26 on Thursday, according to which GDP growth was recorded at 3.7pc in the outgoing fiscal year.

This is higher than last year’s growth of 3.18pc but falls short of its target of 4.2pc.

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Economic survey highlights

• GDP growth recorded at 3.7pc, up from 3.18pc last year

• Agriculture sector posts growth of 2.89pc

• Industrial sector expands by 3.51pc, driven by a 6.1pc rebound in large scale manufacturing

• Services sector records 4.09pc growth

• Per capita income increases to $1,901 from $1,751 last year

• Fiscal deficit narrows to 0.7pc of GDP (July-MarchFY26), down from 2.6pc in the same period last year

• Primary surplus strengthens to 3.2pc of GDP

• CPI Inflation averages 6.2pc (July-April FY26)

• Workers’ remittances reach $30.3bn

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Addressing a press conference in Islamabad, Finance Minister Muhammad Aurangzeb presented the survey, which he said told a story of resilience and discipline shown during the previous year.

He said the country began the outgoing fiscal year with uncertainty due to tariffs. “Then, by the end of July, we reached a point where we could be in a competitive position with respect to our exports, especially to the US,” he added.

Then there were floods in August and September 2025, followed by a regional conflict in March this year, the minister said.

“These challenges tested Pakistan’s resilience,” he said, adding that the government was able to deal with them and remained on the path of moving from stabilisation to growth.

GDP growth

He said GDP growth in FY26 was recorded at 3.7 per cent, against a target of 4.2pc.

However, the economic survey stated that the economy “accelerated its growth momentum in FY2026” compared to the previous year, when GDP growth was recorded at 3.18pc.

“The improvement owes to effective macroeconomic management, better fiscal account, growth in large scale manufacturing (LSM) sector, resilience of the agriculture sector to floods of 2025, exchange rate stability and reforms under the IMF Extended Fund Facility (EFF) Programme,” it stated.

For his part, Aurangzeb also pointed out that global growth had reduced to 3.1pc from 3.7pc due to the factors he elaborated on earlier in the press conference.

The finance minister said that Pakistan had recorded GDP growth of 3.7pc, which was the highest in the past four years. The finance minister recalled that GDP growth in FY2023 was -0.2pc, 2.6pc in FY2024 and 3.2pc in FY2025.

He said it was earlier estimated that GDP growth would exceed 4pc, but it did not happen due to the ongoing conflict in the Middle East.

“But having said that, we have still reached a historically high size of the economy at Rs126.9 trillion,” he said.

The minister said per capita income had reached $1,901, which was $1,751 in FY2025.

Agriculture

Giving a sector-wise breakdown, he said growth in agriculture was recorded at 2.89pc, compared to 1.53pc in the last fiscal year. “This was despite floods,” he said, adding that the crop sub-sector showed positive growth. It was recorded at 1.44pc, the finance minister said.

He added the livestock sector also “continues to go from strength to strength”.

Industrial sector

Overall, the industrial sector grew by 3.51pc in FY2026, the survey document stated. It said the mining and quarrying sector recorded positive growth after contraction during the last fiscal year, signalling recovery in mineral extraction and quarrying activities.

However, the electricity, gas, and water supply industry contracted due to a decline in subsidies, slow growth in the output of the Water and Power Development Authority and companies, and an increase in the deflator, it said.

The construction sector recorded growth of 5.73pc in FY 2026, contributing positively to overall industrial performance, the document said.

LSM

According to the economic survey, overall, the manufacturing sector recorded a growth of 6.6pc on the back of “robust performance of large-scale manufacturing”.

Aurangzeb said 6.1pc growth was recorded in large-scale manufacturing (LSM) in FY26, which was the highest in the last four years. He elaborated that positive growth was seen in 16 of LSM’s 22 sub-sectors.

“So it’s not one single sector that is leading or contributing to this 6.1pc turnaround in LSM. It is broadband [growth],” he said.

He further said that prominent year-on-year growth was witnessed in this sector. “To give you some examples, there was a 10pc increase in the demand for cement, 17pc for fertiliser, 5pc for petroleum, 31pc for automobiles and 9pc for mobile phones.”

Services

Noting that the services sector made up close to 58pc of Pakistan’s GDP, he said 4.09pc growth was recorded in this sector in the outgoing fiscal year.

“This, too, is the highest in the last four years,” he said.

Aurangzeb particularly mentioned communication and information services, which he said recorded a growth of 7.52pc. The growth in this sub-sector in FY26 was also the highest over the past four years.

Moreover, he continued, this sub-sector held significance for the digital economy.

Fiscal deficit

The survey document stated that the fiscal deficit “narrowed significantly” to 0.7pc of GDP (Rs 856.4bn) during July-March FY26 from 2.6pc of GDP (Rs2,970bn) in the corresponding period last year.

Similarly, primary surplus also improved to 3.2pc of GDP from 3pc, the survey document said, terming the increase “historic”.

Aurangzeb said during his press conference that tax revenues had increased by 10.1pc and markup payments saw a decrease of 23pc, which he said increased fiscal space.

Inflation

According to the economic survey, CPI inflation for the period between July-April FY2025-26 was recorded at 6.2pc, against 4.7pc during the same period last year.

“Inflation measured by the sensitive price indicator (SPI) stood at 4.1pc as against 4.8pc during the same period last year … The inflation remained broadly stable during the first three quarters of FY 2026. However, the emergence of an external shock amid geopolitical tensions at the end of the third quarter has increased its vulnerability to renewed price pressures, warranting continued vigilance and timely policy response to preserve macroeconomic stability,” the survey document said.

Inflation rose from 7.3pc in March to 10.9pc in April due to a rise in global oil prices and supply disruptions amid the Middle East crisis.

“Average inflation for July-April FY2026 was recorded at 6.2pc, higher than 4.7pc recorded during the same period of the previous year,” the survey document said.

Moreover, it stated that the national poverty headcount increased to 28.9pc in 2024-25, while inequality also rose, reflecting the impact of Covid-19, increase in inflation, climate and flood shocks, and economic adjustment.

For his part, Aurangzeb argued that inflation had been decreasing over the years. “We began with 28pc, and today we are at a point where the policy rate is 11.5pc,” he said.

Current account surplus

The survey document stated that on the external front, the current account recorded a marginal surplus of $72m during July-March FY 2026 compared to a surplus of $1.7bn in the same period last year.

“Workers’ remittances remained a key source of external sector support, rising by 8.2pc to 30.3bn,” it said.

In this regard, Aurangzeb said a debate had been ongoing regarding exports and remittances. But it was not an “and/or discussion. This is an and/and discussion”, he said.

Acknowledging that there was a need to increase exports, he argued that remittances were also an important structural component of economies that were compared to Pakistan in this regard.

“We can debate how much remittances should be contributing to the GDP and to what extent we should rely on them, but remittances are and would remain a very important component of our external balancing position as we move forward,” he said.

Exports

The finance minister said the decline in the country’s exports was led by the food sector.

“In the food sector, our rice exports have declined by $1.1bn,” he said, adding that a decline of $403m was recorded in sugar exports.

Overall, a decline of around $1.5bn was recorded in food exports, he said.

On the other hand, he said, textile exports had increased. He also highlighted the increase in the export of sports goods, mentioning that the football that was to be used during the upcoming FIFA World Cup was manufactured in Pakistan.

He said that from July-May FY2026, 18pc growth was recorded in the export of sports goods.

The minister said the country’s IT exports had crossed $3.8bn, expressing hope that they would reach $4.5bn. In this connection, he said the freelancer export was now touching $900m.

He said the country’s foreign exchange reserves currently stood at $17.bn, hoping that they would reach $18bn by the end of June. “This will give us three months of export cover, which is an internationally recognised standard, and this should allow us to further upgrade over the course for the next year,” he said.

According to the economic survey, foreign exchange reserves stood at $20.6bn as of April 17, including $ 15.1bn held by the State Bank of Pakistan, “reflecting strengthened external buffers”.

It stated that foreign exchange reserves rose to multi-year highs during the outgoing year.

Meanwhile, the trade deficit for the outgoing fiscal year was recorded at 8.5pc.

Capital markets and corporate sector

According to the economic survey, Pakistan’s capital markets, specifically the equity market, performed well compared to major global stock markets in FY2026.

“The KSE-100 index demonstrated significant growth of 18.4pc during July-March FY2026. This increase can be attributed to strong corporate earnings, a decline in both the policy rate and inflation, the successful review of the IMF-EFF Programme, and subsequent tranche disbursements, all of which contributed to a stable macroeconomic environment that bolstered investor confidence,” the survey document stated.

It said Pakistan Stock Exchange (PSX) market capitalisation recorded Rs15,237bn on June 30 2025 and closed at Rs16,534bn on March 31 2026, reflecting an increase of 8.5pc or Rs1,297.5bn in the period under review.

During July-March FY 2025, a net inflow of Rs 226.69bn was recorded under the National Savings Schemes, the document said, adding that the Securities and Exchange Commission of Pakistan issued 53 certificates of Shariah-compliant securities to corporate Sukuk issuers under the Shariah Governance Regulations, 2023 during July-March FY2026, amounting to Rs229.6bn.

In the sovereign Sukuk segment, total issuances worth Rs1.86 trillion were carried out and secondary market trading surpassed Rs1.38tr during this period, “reflecting robust market activity and investor participation”, the survey document stated.

For his part, Aurangzeb said 39,000 new companies had been registered in FY26, taking the number of registered companies to 300,000.

On investment, he said it was often mentioned often mentioned that some companies had winded up their businesses in Pakistan. “But, it is also true that multinational companies in the fields of telecom, energy, IT, digital services and industrial sectors have either entered the Pakistani market or increased their investments or plans in Pakistan,” he added.

Debt

During July-March FY2026, out of the total external public debt stock of $92.2bn, multilateral loans remained the largest component at $42.5bn, while IMF debt stood at $9.9bn, according to the survey.

Paris Club debt was recorded at $5.5bn while bilateral loans from non-Paris Club countries amounted to $19bn, it said, adding that “the external debt portfolio continued to be largely supported by long-term and concessional financing from multilateral and bilateral sources, helping limit refinancing risks and support debt sustainability”.

External budgetary disbursements were recorded at $6.1bn, including $2.7bn from multilateral sources, $1.1bn from bilateral development partners, $2bn from Naya Pakistan Certificates and $0.2bn from commercial banks, the document said. It added that the government also received $1.2n under the IMF’s EFF during July–March FY 2026.

According to the survey, total public debt was recorded at Rs83,285bn by the end of March this year, comprising Rs57,566bn in domestic debt and Rs25,720bn in external debt.

“During the first nine months of FY 2026, public debt growth remained contained at 3.4pc, compared to 6.7pc during the same period last year, supported by a strong primary surplus, prudent borrowing strategy, and active debt management operations,” the document said.

On this, Aurangzeb said the overall public debt-to-GDP ratio was 75pc in 2023, it decreased to 70.7pc in 2025 and further reduced to 68.5pc this year.

“This means we are moving in the right direction,” he said.

Tax revenue

The survey shows that tax revenue increased by 11.3pc to Rs10,166.6bn in the outgoing fiscal year.

“The increase in tax revenues was contributed to by growth in both federal and provincial tax collections. FBR tax collection increased by 10.1pc to Rs9,305.9bn, while provincial tax revenues increased by 25.8pc to Rs860.7bn,” the survey document stated.

On this, Aurangzeb said digital production monitoring had been introduced in various sectors, and he particularly mentioned the cement and sugar sectors.

“In these sectors, we have received Rs60bn additional revenue because of digital production monitoring,” he said, adding that this mechanism was also being introduced in other sectors.

Moreover, he said AI-based audit selection had yielded an additional Rs34bn in revenue.

He also said that the government intended to increase the number of merchants using digital payments to two million by June 2026, and “we are close to about 1.7m. So, we are getting there”.

Similarly, he said the government planned to increase the number of digital banking users to 120m by June 2026 and had exceeded that target, as the number had reached 133m.

IT is not yet clear how deep and how sustained they are, but cracks are now appearing in the edifice that is the hybrid plus regime running Pakistan these days.

This is a natural consequence of the cul-de-sac where the economy is now parked. In the early months of 2025, Pakistan hit what I called “peak stability”, which was a state of affairs where the economy had been stabilised, its debilitating deficits bridged, inflation extinguished. The big question at the time was what comes next.

No economy can remain in stabilisation mode for very long. At some point, a vision to transition out of stabilisation towards growth had to be implemented, with a kind of growth that would not open the door to the deficits one more time. But that didn’t happen.

Earlier this year, I wrote that we have reached the end of stability. The hunger for revenues and foreign exchange is rising while the economy remains mired in a low-growth stability. And now that hunger has reached the hallowed halls of politics and tested the coalition upon which the government’s majority in parliament (or what is left of it anyway) stands.

The run-up to this budget now sees peak stability rubbing up against its political limits, and the delays in the holding of the National Economic Council meeting — critical to finalising the budget before it is tabled before parliament — show that the edifice is cracking under the strains of operating within its limits.

To see this strain, consider a simple observation. I have never seen the political class of this country as out of ideas as they are now. In the past, for better or worse, at least we had some ideas, some kind of thinking, to tackle the limitations of the state and economy within which they were operating. The ideas may not have been the best, but at least they existed.

We had amnesty schemes, some crafted rather shrewdly, and clever schemes for exporters. We had “deemed incomes” to tax the rich with and a new tax on banking transactions. In 2009, they came up with a ‘carbon surcharge’ on fuel and sold it to the country as a green tax of some sort, designed to help reduce carbon emissions. Nobody quite bought that line, but at least it was new, even if it was just a communication strategy and nothing more.

Back then, we at least had something to critique, because they were actually doing something. True, it wasn’t much. But compared to the present lot, they were moving heaven and earth. Just look at the ideas they are now talking about and you’ll notice either they are not ideas, or they are recycled from the earliest days of Pakistan’s struggles to try and broaden the tax base. Consider the idea to reverse the NFC allocations, which is not an idea but a strong-arm tactic.

The resultant agreement between the centre and two provinces, to pare back provincial development spending and return a larger share of the NFC transfers is a stopgap measure to accommodate the demand for more resources coming from the military without setting into motion a politics that has always led towards confrontation.

One has never seen the political class of this country as out of ideas as they are now.

One can probably point to a few other examples like the national tariff policy under which the government is aiming to reduce import levies in the form of customs duties and additional customs duties in an effort to spur economic activity. But whatever results this produces will be over the long term, far beyond the horizon to be meaningfully measurable. There was some talk at the start of the government’s term to promote digital payments, for which they built a committee and, that was the last we heard of it.

Today, they are talking about fixed taxes for retailers, based on turnover, and clawing back some resources from the provinces. One is among the oldest and most tried and failed ideas in our tax toolkit, and the other is some kind of an elaborate political settlement to distribute the growing expenditure burden of the federal government onto the provincial governments. Both efforts testify to failure.

The budget thus far scheduled for tomorrow will be little more than a ceremonial exercise. One hesitates to use metaphors mentioning the Titanic because that language feeds despondency and despondency is our biggest enemy in times such as these. Just because the government has failed is no reason for the rest of us to give up as well. But there is clearly an element of rearranging the deck chairs in how they are trying to thrash out some fiscal breathing room from inside their shrinking space.

Let’s be clear about one thing. This is what happens when a government has no opposition and no free media to worry about. They clap and cheer themselves all the way to a dead end. And once there, they look for ways to pass the parcel of responsibility around among themselves, and burden those who are captive to their machinery. It has taken them two years to get to this point. Along the way, they needed those who would point out that their peddling on stability is not getting anyone anywhere. But aside from a handful (and might yours truly include himself here, please?) these voices have been absent.

Politics needs an opposition the same way an economy needs risk to thrive. Without these — risk and opposition — power and capital are not tested and do not get a chance to sharpen their approach, to self-correct.

Those running our country today have got to find it in themselves to be in the game for more than just the trappings of power. They have to bring some thinking to the office. Otherwise, the constraints of their situation will keep tightening, and it’ll be the rest of us doing the screaming. Maybe, they’re alright with that, but I’m not.

The writer is a business and economy journalist.
khurram.husain@gmail.com
X: @khurramhusain

Published in Dawn, June 11th, 2026

THE budget is a tug-of-war between different interest groups. On one hand, there is explicit lobbying by various business groups and industry bodies that commission reports, hold events and engage policymakers.

These organisations, explains Dr Ali Hasanain, associate professor of economics at Lums, also meet political party leaders and bureaucrats in both formal and private settings to communicate their concerns and policy preferences.

This is broadly in line with how businesses operate globally. For ex­­ample, US President Donald Tru­­mp’s top backer in the last ele­ction was investor Timothy Mel­l­­on, who gave $150 million to Make America Great Again, Inc., follow­­ed by Elon Musk, who gave $118.6m.

But while lobbying and formal influence exist everywhere, the distribution of power is far less orderly in Pakistan. No single player is all-powerful, though wealth is concentrated in relatively few hands. Instead, policy becomes outcome of fragmented pressure from multiple directions.

The big boss may be IMF, but Pakistan remains a sovereign nation, not a subject of the Fund

In Pakistan’s case, this fragmentation is further constrained by an external anchor: the IMF. Under successive programmes, Pakistan is required to meet a long list of targets. Yet within those constraints, governments tend to follow the path of least resistance, typically raising taxes on those already in the tax net rather than expanding it. This tendency is reinforced by a deeper structural weakness: the lack of strong feasibility studies for projects. Plans are often undertaken without adequately accounting for inefficiencies, bureaucratic incompetence, weak political leadership and changing political equations, he says.

‘Noise’ from lobbies

On the one hand, there are concentrated lobbies; on the other, there is the politics of visibility, the ‘noise makers’.

Take retailers and wholesalers, for instance. They remain among the country’s most undertaxed sectors and have repeatedly been identified by the IMF as areas requiring reform. Yet, even the latest small trader scheme is less a tax reform than a negotiated settlement.

“Combined together, they can make a lot more noise than your typical person” and therefore can remain broadly outside the tax net, points out Ammar Habib Khan, assistant professor of practice at IBA, Karachi.

He cites solar net metering as another classic example of the power of noise. “There are only about 400,000 net-metering users, but they can make so much noise that the government finds it difficult to make a reasonable decision,” he says.

“Globally, the transition from net metering to net billing is fairly standard. However, policymakers struggle to make that decision because many of the people affected are wealthy, influential and belong to powerful families.”

This creates a second-order distortion in the process: not just who has formal access to power, but who can raise the political cost of change.

The IMF influence equation

Pakistan’s role on the global chessboard is defined by more than just its GDP.

The nuclear-armed state shares borders with Afghanistan, India, Iran and China while also close to Russia and key Gulf chokepoints. It is one the most densely populated countries, and an important part of the Muslim world.

The United States is the largest single member of the IMF, with the highest financial contribution and voting power. The Fund has a lending capacity of roughly $1 trillion. By comparison, what the US economy produces in about a week — roughly $570 billion — exceeds Pakistan’s annual GDP of approximately $452bn.

Against that backdrop, a $7bn IMF programme, staggered over three years and repayable with interest, is small in financial terms but significant in terms of influence. It is a low-cost, high-leverage exposure to a strategically important state.

The big boss may be the IMF, but Pakistan remains a sovereign nation, not a subject of the Fund. As a lender of last resort, the IMF steps in when a country faces a severe financial crisis.

“When the lender comes to collect, whether you pay it off by selling your wife’s jewellery, dipping into your savings, or using your son’s tuition fund is up to you. The lender’s job is to collect,” Dr Hasnain explains, arguing that while the goals may belong to IMF, the mechanisms belong to Pakistan.

Published in Dawn, June 11th, 2026

• Overall development outlay slashed by 25pc to Rs3.218tr
• Federal PSDP reduced to Rs1tr, provincial ADPs to Rs2.218tr
• No new projects except for interior, defence ministries
• PM says strengthening defence is country’s biggest challenge
• Ahsan says Pakistan lagged behind region due to weak investment in education, skills

ISLAMABAD: Freezing provincial development plans at their actual utilisation this year, the National Economic Council (NEC) on Wednesday cut the federal and provincial development budget by one-fourth to Rs3.218 trillion for the next fiscal year from Rs4.264tr cleared by the Annual Plan Coordination Committee (APCC) last week.

Of the Rs1.046tr total cut, the combined annual development plans (ADPs) of the four provinces were slashed by almost one-third (29.3pc) to Rs2.218tr — roughly their actual utilisation so far in the current fiscal year — compared to the Rs3.138tr provincial portfolio finalised by the APCC on June 1.

Punjab’s development plan was chopped by almost half, or 49pc, the biggest cut among all stakeholders, while Balochistan remained unaffected and actually secured more.

The development freeze was agreed upon by the major coalition partners — the PPP and PML-N — before the NEC and budget dates were finalised.

To provide political face-saving to provincial governments, the federal government also agreed to bring down its Public Sector Development Programme (PSDP) by Rs126bn, or 11pc, to Rs1tr from Rs1.126tr recommended by the APCC, Planning Minister Ahsan Iqbal told reporters after the NEC meeting.

The meeting was presided over by Prime Minister Shehbaz Sharif and attended by three provincial chief ministers. Punjab Chief Minister Maryam Nawaz could not attend because of her recent surgery.

The minister said provincial governments had argued that it would be difficult for them to defend ADP cuts if the Centre’s PSDP remained intact.

Mr Iqbal said the Punjab chief minister had authorised the downward revision that restricted Punjab’s ADP for next year to Rs749bn from Rs1.455tr cleared by the APCC only a week ago.

Coalition partner PPP was able to minimise the dent to Sindh’s ADP, which was contained at Rs706bn for next year — down 13.5pc, or Rs110bn — from last week’s Rs816bn, which was already lower than the current year’s revised ADP of Rs845bn.

Khyber Pakhtunkhwa Chief Minister Sohail Afridi agreed to a revised ADP of Rs455bn — exactly the same as budgeted this year — instead of Rs564bn cleared by the APCC.

Balochistan was the only province to retain its Rs308bn development programme for next year, almost Rs29bn higher than the amount budgeted for the current fiscal year.

The separate development plans of federal state-owned entities remained unchanged at Rs451bn, putting the consolidated national development outlay at Rs3.669tr, down 22.2pc, or Rs1.046tr, from Rs4.715tr announced after the APCC meeting last week.

The APCC is a forum of federal and provincial planning ministers that finalises development recommendations for the NEC’s approval.

Informed sources said that with reappropriation of the development portfolio, around Rs800bn to Rs900bn could be repurposed for strategic needs such as water resources and national security.

Responding to a question, the planning minister said the development programme would contain “no new project except for the ministries of interior and defence” and noted that the actual size of savings would depend on many variables, including actual tax collections and how these savings became available.

For example, he said, the Diamer-Bhasha dam alone required Rs170bn but had been allocated Rs20bn. Total allocations for the water sector amounted to Rs103bn, he said.

Strengthening defence

Meanwhile, in a televised statement, Prime Minister Shehbaz Sharif said the “biggest challenge” the country faced was “to strengthen our defence”, particularly against terrorism.

“The entire nation, especially KP and Balochistan, as well as the law enforcement agencies and armed forces, is making sacrifices in the fight against terrorism,” he said, adding that terrorism could only be eliminated if the country “put up a collective struggle against it”.

The prime minister said the Centre and provinces had taken many decisions in the best interest of Pakistan, as consultations with the provinces on all matters were conducted with seriousness to see where more resources could be generated.

PM Shehbaz said he had held a telephonic conversation with IMF Managing Director Kristalina Georgieva, who was extremely appreciative of Pakistan’s sincere efforts towards the IMF programme.

He said that despite major challenges, Pakistan had achieved macroeconomic stability, but injecting growth was an extremely important process.

“Advancing employment, production, exports and economic activity is our collective responsibility,” he said, adding that all governments had tried their best to stay on track with the IMF programme despite “some difficult stages”.

Apparently hinting at the budget later this week, the prime minister stressed the need to inject incentives aimed at export growth and manufacturing capabilities into the economy to accelerate GDP growth.

He noted that a common man would not concern himself with “macro-level stability” but wanted better employment opportunities, development in agricultural and industrial sectors, and growth in exports.

‘Development deficit’

Mr Iqbal said the NEC agreed that the time had come for the entire nation and all stakeholders to sit together and work for export growth to $100bn in a few years, as well as import substitution, like the country had worked for its nuclear mission.

The huddle agreed to his suggestion for quarterly NEC meetings to review and make adjustments by reviving the council’s original mandate of coordinating financial, social and economic policies, as required under Article 156 of the Constitution, to overcome the “development deficit”.

He said the NEC had turned over the years into a forum that merely stamped the development budget, although it was required under the Constitution to review the overall economic condition and advise both the Centre and the provinces in formulating plans “in respect of financial, commercial, social and economic policies” to ensure balanced development and regional equity.

As a consequence, Pakistan had lagged behind regional competitors, he said.

In the early 1990s, Pakistan, India, China and Bangladesh had almost similar per capita incomes — between $324 and $363 — but Pakistan fell behind, with its current per capita income at just $1,824 compared to $2,675 in India, $2,653 in Bangladesh and $14,000 in China, while Vietnam moved from $99 to $5,026 per capita. This was mainly because others invested aggressively in education, skills, population control, female workforce participation and export competitiveness, while Pakistan did not, he said.

No country could deliver economic outcomes with 2.5pc population growth and less than 64pc literacy rate, Mr Iqbal said, adding that youth potential was being lost in Pakistan and inequality was rising.

“How can we have development while spending 74pc of revenues on debt servicing?” he asked.

The meeting decided to focus on public-private partnership in development at the next NEC meeting and on freeing the business environment of regulatory sludge.

He said bureaucracy would be reoriented towards economic delivery from its existing role of maintaining law and order and revenue collection. He said the prime minister had approved 11 economic missions and directed the finalisation of key performance indicators in consultation with all stakeholders.

Despite downward reductions in the development portfolio by almost a quarter, the minister said next year’s GDP growth target would stay at 4pc, to be aided by 3.6pc growth in agriculture, 4.5pc in industry and 4.2pc in services. Inflation, measured by the Consumer Price Index, was estimated at 8.2pc.

The Rs1tr federal PSDP will also contain foreign assistance equivalent to Rs255bn, while the provincial Rs2.218tr portfolio will include Rs583bn in foreign aid, taking total foreign funding to Rs838bn — or 26pc of the total Rs3.218tr development outlay.

Giving a break-up, the minister said the PSDP contained Rs602.5bn for infrastructure, including Rs116bn for energy, Rs76bn for water, Rs356bn for transport and communication and Rs55bn for physical planning and housing.

Another Rs181bn has been earmarked for the social sector, including Rs74bn for education and higher education, Rs22bn for health, Rs63bn for MNA schemes and Rs21bn for other social sectors. Likewise, Rs63bn has been allocated for coalition partners’ schemes.

In addition, Rs89bn has been set aside for special areas, including AJK and GB, Rs56bn for the merged districts of KP, Rs41bn for science and technology and Rs13bn for governance.

Another Rs12.6bn would be used for production sectors, including Rs4.6bn for food and agriculture and Rs8bn for industries, while the remaining Rs5bn has been allocated for miscellaneous areas.

Published in Dawn, June 11th, 2026

• Those earning between Rs230,000-Rs341,000 per month likely to get some relief; maximum tax rate expected to be lowered from 35pc to 30pc
• Rs660bn to Rs700bn in fresh tax measures planned, including enforcement and new levies
• Govt targets Rs15.3tr FBR revenue in FY2026-27

ISLAMABAD: Significant relief is planned for salaried individuals earning between Rs230,000 and Rs341,000 a month in the upcoming budget, but a large segment of those making between Rs100,000 and Rs183,000 per month may not see any change, official sources told Dawn.

Facing limited fiscal space, the Shehbaz Sharif-led coalition government is set to unveil fresh tax measures worth Rs660 billion to Rs700bn in the 2026-27 budget.

The fiscal policies align with commitments under an International Monetary Fund programme aimed at achieving an ambitious revenue collection target.

In contrast to the broader revenue measures, the budget carries highly targeted good news for mid- and upper-level income earners.

Individuals earning between Rs230,000 and Rs300,000 a month are expected to see a steep reduction in their tax burden, official sources involved in budget preparations told Dawn.

A significant reduction is also planned for individuals earning between Rs266,000 and Rs341,000 a month, whose current slab carries a liability of Rs28,833 plus 30pc of income above Rs266,000.

Additionally, the maximum salary tax rate is under consideration for a cut to around 30pc from the existing 35pc.

However, no visible changes are expected for individuals drawing between Rs100,000 and Rs183,000 per month, a bracket where a large segment of the salaried class falls. The applicable tax for this group remains Rs500 plus 11pc of income above Rs100,001.

The exemption threshold will remain unchanged at Rs600,000 annually, while those earning up to Rs1 million a year will continue to face a token 1pc tax, a rate described as purely for documentation purposes.

The government has pledged to raise an ambitious Rs15.3 trillion in tax revenue through the Federal Board of Revenue in FY2026-27. The new target reflects a projection of an increase of Rs2.32tr, or 17.84 per cent over the collection of the outgoing fiscal year.

The initial plan envisions Rs 660 billion in tax measures — Rs260bn through new tax measures and Rs 400 billion via enforcement. To achieve the proposed target, autonomous tax growth is projected at Rs1.65tr based on a GDP growth target of 4pc and an inflation rate of 8.2pc.

With the current year’s revenue collection of Rs12.983tr and autonomous growth of Rs1.657tr, revenue collection will reach Rs15.3tr in FY27, including new tax or enforcement measures.

Officials involved in the preparations noted that the new target is over-ambitious and unrealistic, but the government has no option to reduce it. “We are under IMF programme and have to agree with the target,” an official said, adding that the FBR will face significant challenges in meeting its collection goals.

Finance ministry officials continue to present optimistic projections, seemingly hoping for a tax windfall without acknowledging economic headwinds and high inflation. With key industries contracting and consumer confidence fading, the feasibility of achieving the targets remains highly questionable.

Moreover, revenue collection could face setbacks due to a lower-than-expected allocation for the federal Public Sector Development Programme, which includes fewer new projects and remains notably smaller than those of the Punjab and Sindh provinces.

On the trade front, the government decided to slash the additional customs duty on 3,149 tariff lines and reduce regulatory duties to 20pc on more than 1,900 tariff lines.

However, a major decision to reduce automobile sector tariffs is on hold due to pressure from local manufacturers. The Tariff Policy Board recommended slashing the maximum duty on automobiles to 75pc from the existing 150pc. Prime Minister Sharif has constituted a committee to examine the proposal.

“This clearly shows the government’s intent to continue shielding the auto sector,” the official said, noting the move effectively delays the implementation of a five-year tariff reform plan.

Published in Dawn, June 11th, 2026

Finance Minister Muhammad Aurangzeb will present the federal budget for the next fiscal year (FY26–27) in the National Assembly on June 12, an adviser to the minister has confirmed.

Adviser to the Finance Minister Khurram Schehzad shared the revised budget schedule in a post on X.

He added that the Pakistan Economic Survey for the outgoing FY2025–26 would be launched at 2:20pm on Thursday by Aurangzeb.

Budget sessions of the National Assembly and Senate have already been summoned by President Asif Ali Zardari.

The National Economic Council (NEC), the highest economic decision-making forum of the federation, met earlier on Wednesday to finalise federal and provincial development plans ahead of the budget presentation.

Prime Minister Shehbaz Sharif, who chaired the meeting, said the Centre held consultations with the provinces on all matters “with extreme seriousness, and we made decisions in the best interest of Pakistan”.

The NEC finally met after being delayed three times, as negotiations had continued over the freezing of provincial shares in the federal divisible pool under the National Finance Commission (NFC) award.

The budget presentation in the parliament had earlier been set for June 10.

The federal government, its coalition partners and provincial governments had been struggling to reach a consensus over the Centre’s demand for more than Rs1 trillion for strategic needs.

However, the ruling PML-N and its major ally, the PPP, on Monday reached a consensus on the broad framework of the federal budget.

They reached a broad agreement on cutting development and other expenditures at all tiers of the federation to cover around Rs800 billion revenue shortfall this year and jointly create similar, but higher, fiscal space next year for additional “strategic needs”.

Under the agreement, provincial shares from the federal divisible pool would stay frozen at the current fiscal year’s position. Any increase in the targeted revenue next year on top of the Federal Board of Revenue’s (FBR) collection in the current year would be retained by the Centre, informed sources said.

The sources said the additional amount being discussed for next year to be given up by the provinces was not fixed but dynamic, depending on FBR revenue collection, and could range anywhere between Rs1.3tr and Rs1.7tr.

Interestingly, Balochistan and Khyber Pakhtunkhwa were not part of the deal so far.

Under tight International Monetary Fund (IMF) oversight, the government has trimmed allocations for most sectors in the next federal development programme to create additional fiscal space for the PML-N’s trademark national highways, a new Rs87 billion share for coalition partners and a Rs70bn allocation for ruling party lawmakers’ schemes.

Yet, the government has unveiled a record national development programme of Rs4.715tr.

The overall deve­l­opment portfolio comprises the largest share of provincial annual development plans (ADPs) at Rs3.138tr (up 9.6pc), followed by the federal Public Sector Development Programme (PSDP) of Rs1.126tr, up 12.6pc from the current year, and Rs451bn from state-owned enterprises (SOEs), up 27pc from Rs355bn in the current fiscal year.

PM Shehbaz has said that the government was taking measures to bring the informal economy into the tax net.

The government last week unveiled the ‘Fixed Tax Asaan Scheme’ to bring small traders and shopkeepers into the tax net, with an annual turnover of up to Rs200 million.

The government is also considering relaxing the remittance cap in the upcoming budget as overseas Pakistanis in several countries face difficulties in protecting their investments and liquid assets abroad, according to sources in the financial industry.