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CWA # 2220, 31 July 2026
PR Commentary
Pakistan's Federal Budget FY2026-27:

  Dhivya KM
Dhivya KM is a Research Intern at the National Institute of Advanced Studies (NIAS), Bengaluru. She is currently pursuing an MA in Financial Economics at the Madras School of Economics, with research interests spanning financial markets and geopoliti

On 12 June 2026, the Federal Budget for FY2026-27, submitted by the government to the National Assembly, as per the constitutional provisions laid down in Article 80(1) of the Constitution of Pakistan, is the annual financial plan of the government. The total projected spending for the fiscal year is PKR 25.2 trillion while the total resources stand the same. This budget shows that there has been a definite shift from the concept of stabilisation to that of growth and development.

The following are five key takeaways from the report. 

1. Revenue mobilisation is critical, along with a major rise in revenue targets of the Federal Board of Revenue (FBR)
In the current budget, a highly ambitious revenue target has been fixed, whereby FBR will mobilise PKR 15.3 trillion in taxes for FY2026-27. This is a huge rise over the revised target for the last fiscal year. While talking about direct taxes, these will reach PKR 7.6 trillion whereas the indirect taxes will come out to be PKR 7.7 trillion. In the case of non-tax revenue, which would be generated through ministries/divisions, they are estimated to provide PKR 5.3 trillion in revenue, where the petroleum levy will keep on making the highest contribution in this respect. Revenue targets of the government are based on reforms in FBR administration, rationalisation of tax exemptions, and broad-based tax system. But it needs to be borne in mind that according to Statement of Fiscal Risks, revenue shortfall risks on account of lower tax elasticity, SBP surplus profits, or petroleum levy continue to remain the most pressing risks to the fiscal framework.

2. Debt servicing dominates expenditure, but social protection and defence allocations rise
Current expenditure on the revenue account is budgeted at PKR 17.5 trillion, of which debt servicing alone accounts for over PKR 8 trillion. Servicing of domestic debt primarily interest payments on Pakistan Investment Bonds, Treasury Bills, and Ijara Sukuk is the largest single line item in the budget, reflecting the accumulated cost of years of high fiscal deficits and domestic borrowing. The defence budget rises to PKR 3 trillion, the largest allocation to the sector in recent years. Social protection spending climbs to PKR 857 billion on the revenue account, with the Benazir Income Support Programme alone allocated PKR 845 billion. Superannuation allowances and pensions are budgeted at PKR 1.2 trillion. Health and education allocations have also been revised upward, with PKR 1 billion specifically for free medicines in federal hospitals and grants extended to the Higher Education Commission. Total public debt repayment on the capital account is projected at PKR 26 trillion, underlining the scale of the government’s gross borrowing and repayment cycle.

3. External borrowing rises sharply, reflecting growing reliance on foreign loans
Total external receipts are budgeted at PKR 6.8 trillion in FY2026–27, a significant increase over revised estimates of the previous year. Most of this external financing is drawn from commercial and other loans rather than concessional project loans, reflecting a move toward more expensive sources of external funding. Project loans under the Public Sector Development Programme have been scaled back, while the government has budgeted a large increase in “other loans” a category that includes commercial credits, and bilateral arrangements. External grants remain small and are declining. The Statement of Fiscal Risks identifies exchange rate depreciation as a factor that could push up external debt servicing costs, although the government's baseline projections assume the exchange rate will stay relatively stable over the year. 

4. Development expenditure is trimmed, but climate, gender, and disaster budgeting are institutionalised
Total development expenditure is budgeted at PKR 1.6 trillion, a modest reduction from the previous year’s revised figures. Within this, development spending on the capital account declines, while the revenue-side development allocation holds roughly steady. The Public Sector Development Programme continues to focus on infrastructure, water resources, energy, and information technology. What stands out in FY2026–27 is the formal institutionalisation of three cross-cutting budget frameworks: the Climate Budget Statement, the Gender Budget Statement, and the Disaster Budget Statement. Climate-responsive allocations account for one per cent of the current budget and 11 per cent of the development budget, with the government introducing an AI-enabled digital infrastructure to track climate-related expenditures across more than 5,000 cost centres. Gender-budgeting spending accounts for 9 per cent of the current budget.

5. Contingent liabilities and fiscal risks remain elevated, with state-owned enterprises a persistent concern
The budget's statement of contingent liabilities shows sovereign guarantees stood at PKR 4.3 trillion as of end-March 2026, with the power sector accounting for more than half. New guarantees issued during FY2026 are set to push the closing guaranteed debt position to around PKR 5 trillion by end-June 2027, driven by projects such as Reko Diq, the ML-3 Rail Project, and the C-5 Power Project. State-owned enterprises remain a persistent fiscal risk, held back by years of inefficiencies and weak governance, and the government is hoping to turn things around through performance-based contracts and by selling off or shutting down the loss-making ones. Natural disasters remain the biggest wildcard, since just one bad event could push the fiscal deficit up by 1.5 per cent of GDP. Overall, Pakistan's FY2026–27 budget makes it clear the government is turning from stabilisation towards growth. The FBR is aiming to bring in PKR 15.3 trillion in revenue, mostly through rationalising taxes and widening the tax base. There's also a growing reliance on external commercial loans, which could mean pricier borrowing ahead. Development spending has been trimmed a bit, though climate, gender, and disaster budgeting have finally been made a permanent part of the process.
 

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