The federal government aims to strongly increase economic growth within the framework of its annual federal budget unveiled on Tuesday, but analysts are skeptical of the country’s ability to achieve its ambitious objectives.
The target budget for higher income and a significant reduction in the budget deficit of the International Monetary Fund (IMF) – reforms. However, defense expenses have been increased by 20%, excluding military pensions, after last month’s conflict with India.
The Minister of Finance, Muhammad Aurangzeb, said on Wednesday at a post-budget press conference that customs duties had been reduced or eliminated over thousands of raw materials and intermediate goods.
“The industry here must be competitive, competitive enough to export,” he said.
But growth engines remain vague. The government aims to growth in GDP of 4.2% in the year 2026, against 2.7% this year, which was revised compared to 3.6% initial as an asgid and a large-scale manufacturing.
“Pakistan’s GDP growth projection of 4.2% seems ambitious given recent performance, and too optimistic assumptions can place tax objectives out of reach,” said Callee Davis, main economist at Oxford Economics.
Pakistan’s past growth thrusts have been directed by consumption, triggering equilibrium attacks and FMI reunions. The government says it now wants higher quality growth and investment.
Aurangzeb said that structural reforms are underway, pointing to pro-commercial transitions in East Asia style. “This is a moment in East Asia for Pakistan,” he said.
The RS17.57 Billion Budget ($ 62.24 billion) occurs because Pakistan remains as part of an IMF program of $ 7 billion. Income is expected to increase by more than 14%, pulled by new taxes and expanding the tax base. The budget deficit is targeted at 3.9% of GDP, compared to 5.9% of this year.
The main reforms include the taxation of agriculture, real estate and retail, and the revival of staller privatizations. But this year’s revenue deficits have raised doubts, both with missing agricultural income tax and retail collections. Only 1.3% of the population paid income tax in 2024, according to government data.
“Pakistan’s budget maintains the IMF and happy investors, even if it has a short -term cost for growth,” said Hasnain Malik, head of action strategy at Tellimer. “The political situation also reduces the risk of protests.”
Although overall expenses drop 7%, defense will increase after the worst fights between nuclear neighbors for decades. Including pensions, defense expenses will total $ 12 billion, 19% of the federal budget or 2.5% of GDP, corresponding to the share of India, according to the World Bank data.
The increase was activated by a sharp drop in interest payments, as the central bank has dropped the police rates from 22% to 11% in the past year, which has softened the service costs of the interior debt. Aurangzeb said that subsidies have also contributed to creating a budgetary space.