A treatise on political priorities and constraints

FOR the first time in years, Pakistan’s budget reads less like a crisis management document and more like a cautious growth agenda.

The budget for FY27 comes at a moment when IMF-mandated stabilisation has helped significantly improve the fiscal position, slash inflation, and contain the current account deficit. For a government that spent its first two years ‘firefighting’, this is the first budget that makes political choices.

How it has used that opportunity represents both the government’s priorities, and its constraints.

“This budget signals a transition from stabilisation towards moderate growth. The salary tax reduction, the removal of super tax for small and medium enterprises, the reduction in super tax from 10pc to 8pc for larger companies, the relief for exporters: these are moving in a positive direction and will be well-received by both the corporate and salaries people,” says AAH Soomro, an independent market and financial analyst.

The relief measures are substantive. For salaried workers, income tax rates have been cut by 3-6 percentage points across multiple personal income tax slabs, with the additional surcharge also reduced. For a salaried class that has borne a disproportionate share of Pakistan’s tax burden while wealthier segments evade with impunity, this was an overdue correction.

For a government that spent its first two years ‘firefighting’, this is the first budget that makes political choices

Corporate relief is equally important. The super tax’s lower slabs have been abolished entirely, freeing companies with profits below Rs500mn from it altogether, while the rate for larger corporates falls from 10pc to 8pc. Exporters benefit from reduced advance minimum income tax, the IT sector’s exemption is extended to 2029, and customs duties on industrial inputs are cut across 92 tariff lines. These measures target stimulating investment and compliance.

Sajid Amin, a leading Islamabad-based economist, acknowledges that the budget is better than expected on short-term relief. However, he argues, the government has merely lessened the burden it had itself imposed on compliant individual taxpayers and businesses in the last two years. “Beyond that, it offers nothing for the common man,” he says.

The growth strategy, however, rests on a historically unreliable foundation. The primary engine is real estate, with reduced taxes on property sale and purchase, abolished deemed income tax, Rs71bn in concessional housing finance, removed capital value tax on foreign assets. Construction will likely respond. But Pakistan has repeatedly deployed this strategy before. And the pattern is invariable: a short boom, speculative inflation, capital diverted from productive uses, then a bust lasting years. Real estate generates activity. It does not generate exports, industrial capacity, or agricultural productivity.

“The primary sectoral impetus has gone to construction. Every time we drive growth through real estate and construction, it leads to a boom-and-bust cycle, and it happens very quickly. Will it boost export growth, productivity and industrialisation? Marginally, perhaps. These are short-term to medium-term solutions at best,” Soomro observes.

Nonetheless, while moving onto a growth path — no matter how moderate for now — and providing relief to taxpayers, the authorities have ensured that they don’t breach the IMF’s fiscal consolidation targets. The primary surplus is maintained at 2pc of GDP and the fiscal deficit at 3.6pc, satisfying core programme requirements. But the government has not cut its own expenditure. Instead, Rs1tn has been extracted from the provinces’ divisible pool share, with this arrangement locked in until FY29. Defence rises 17.6pc to Rs3tr. The federal pay and pension bill grows. The adjustment falls on provinces and development spending.

The FBR revenue target of Rs15.26tr, representing 18pc growth, is the budget’s most exposed number. Relief measures significantly outweigh revenue measures. Soomro warns that the strategy could backfire if the super ambitious FBR target is not met. “If they fall short, the choices are all uncomfortable -- cut the PSDP after six months, seek an IMF exemption on the primary surplus, or introduce a mini-budget,” he cautions.

That said, this is a better budget than Pakistan has produced in years: relief is well-targeted and IMF discipline is maintained. But it is not transformative. Energy, productivity, regulatory and other structural reforms are missing from it. Amin argues that the budget fails to correct the major structural faultlines constraining the economy: a narrow tax base, expensive energy and an environment hostile to investment. “There is no roadmap here for addressing the issues that are holding back sustainable growth,” he adds.

Soomro argues that “if the regional conflict winds down, oil prices fall, and confidence returns, a 4pc to 4.5pc growth is entirely achievable; the base is low enough. But compared to what the economy actually needs, this budget is, at best, a first trailer of growth.”

The government has intelligently balanced the IMF discipline and its own desire for growth. But Soomro cautions against mistaking modest progress for meaningful transformation. “It will not reduce poverty. A $1,900 per capita GDP is not enough to pull people out of poverty. A 4pc growth is reasonable in the current circumstances, but nothing too exciting.”

Converting stability into productivity-driven growth remains, once again, a task deferred to distant future.

Published in Dawn, June 13th, 2026 ...