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NIAS Area Studies
PAKISTAN READER
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In Focus
SCO Foreign Ministers Meeting: FM Dar advocates for dialogue to resolve disputes
On 15 July, Deputy PM and Foreign Minister Ishaq Dar addressed the Shanghai Cooperation Organization Council of Foreign Ministers meeting being held in Tianjin, China. Dar emphasized the importance of SCO in playing a “stabilizing force” and appreciated China's leadership in promoting the SCO’s agenda. He denounced the attacks carried out by Israel in Gaza and termed them “reckless disregard for international norms.” He also called for an “immediate ceasefire” and reaffirmed Islamabad’s backing for the “two-state solution.” Further, he criticized the recent US attacks on the nuclear sites in Iran, terming them “unacceptable.” On the Pahalgam terrorist attack, he claimed that accusations against Pakistan could have likely escalated into a bigger conflict with India. He reiterated Pakistan’s stance on resolving disputes via “dialogue.” On the ceasefire with India after the military confrontation, he said, “Pakistan remains committed to ceasefire agreements and regional stability, but we cannot accept the normalization of arbitrary force.”
Bilateral meetings at SCO
On the same day, FM Dar also held separate discussions with the Foreign Ministers of Russia, Kyrgyzstan, and Kazakhstan. In his discussion with the Foreign Minister of Russia, Sergei Lavrov, the two leaders expressed contentment over the progression of bilateral relations between the two countries. The two leaders also looked towards increasing collaboration in “trade, energy, agriculture, and defence.” In his discussion with his counterpart from Kyrgyzstan, Foreign Minister Kulubaev Zheenbek, the two leaders reiterated their resolve to the “longstanding” bilateral ties and conveyed interest in enhancing collaboration in other sectors. In his discussion with the Foreign Minister of Kazakhstan, Murat Nurtleu, both sides reaffirmed their commitment to enhance bilateral relations and increase cooperation in “regional and multilateral fora.”
Response from the Print Media
On 16 July, an editorial in The Nation titled “SCO Pillar,” viewed the SCO grouping as a “stabilizing force” in the region. As per the editorial, SCO, backed by Russia and China could be seen as a “counterweight” to the US’s “military presence” in the countries of the Middle East. The editorial appreciated the stance taken by Pakistan at the SCO meeting, where it called out Israel for carrying out attacks in Gaza. Further, as per the editorial, Pakistan's voicing of its support for enhancing “regional cooperation” strengthens its “diplomatic relevance.” (“Dar rejects 'normalisation of arbitrary force,'” The Express Tribune, 16 July 2025; “SCO Pillar,” The Nation, 16 July 2025)
Speculations on the transfer of power, as PM meeting COAS and President
On 16 July, The Express Tribune reported that the Chief of Army Staff, Field Marshal Syed Asim Munir, called on Prime Minister Shehbaz Sharif, shortly after the latter met with President Asif Ali Zardari, giving rise to speculation over the army chief potentially replacing the President. A possible 27th Constitutional Amendment may be enacted, paving the path for the appointment of a successor to the Presidency. Additionally, it is speculated that the parliamentary form of government may be replaced with a presidential form of government. Defence Minister, Khawaja Asif, confirmed that the issue of the president's resignation and his potential replacement by the army chief had come up in the meeting between President Zardari and PM Shehbaz, but dismissed all such reports as “unfounded.” Further, he argued that President Zardari was informed about the developments, and he showed “full confidence” in the government and current political system. Asif clarified that the “army chief has no interest in politics.” These rumours have emerged after reports of a rift between the ruling PML-N (Pakistan Muslim League-Nawaz) and its coalition partner PPP (Pakistan People’s Party) after PML-N emerged as the single largest party in the National Assembly, following the Supreme Court’s judgement in the reserved seats case. Asif, however, assured that the two largest parties in the parliament would stay together and “keep a united face.” (Rizwan Shehzad, “Rumours swirl amid flurry of high-level meetings,” The Express Tribune, 16 July 2025)
ADB report reveals gaps in Pakistan's digital sector
On 16 July, The Express Tribune reported that the Asian Development Bank (ADB) has released a report titled ‘Pakistan’s Digital Ecosystem: A Diagnostic Report,’ analyzing Pakistan's digital ecosystem. Findings of the report reveal structural hindrances and gaps in digital infrastructure and adoption. According to the report, Pakistan falls behind many countries in the promotion of 4G technology and has not released 5G services. It also remains one of the most heavily taxed telecom markets in the region. While Pakistan's telecom sector is currently valued at USD 4.52 billion, it is projected to grow to USD 5.32 billion by 2029. Threats to this growth include a lack of fibre-optic expansion and less investment in digital networks due to political instability and policy delays. Additionally, the report highlights Pakistan's delay in auctioning 5G spectrum. The government has also not invested in the 3G spectrum. The ADB observes that Pakistan's digital economy contributes just 1.5 per cent to GDP. Fixed broadband penetration remains glaringly low at 1.3 per cent. Actual usage is limited despite 80 per cent of the population being covered by mobile internet networks. The report also highlighted digital inequality and disparities for women and low-income groups. In conclusion, the report argued that Pakistan has failed to effectively modernise its telecom sector and advance digital connectivity across the country.
On the same day, an editorial in The Nation titled ‘Reforming Digital,’ expressed caution regarding ADB’s call for Pakistan to reform its digital ecosystem, arguing that the recommendations “must be contextualised within Pakistan’s fiscal constraints and socio-economic realities.” The editorial acknowledged that the ADB’s recommendations are timely and aligned with the country’s long-term interests, stating that modernising digital infrastructure at par with global standards will help unlock economic growth. The editorial credited PML-N for implementing initiatives in this regard, asserting that ADB and Pakistan have a “shared recognition of digital transformation as a national priority.”
However, the editorial highlighted that widespread digital reforms cannot be implemented indiscriminately; the recommendations must be contextualised within Pakistan’s fiscal obligations and socio-economic realities. The editorial insisted that Pakistan’s complex regulatory compliance regime must be reformed. However, the government must balance these reforms against revenue generation targets, especially those linked to multi-lateral lending and debt servicing. The editorial warned that the federal government cannot afford to implement ADB’s suggestion to ease the tax burden on major firms, as it requires a blanket tax exemption for large corporations, which cannot be done, citing the burden on common taxpayers. The editorial concluded by stating the nuanced and fair digital transformation is critical for Pakistan’s future, arguing the adoption of a “tiered, localised approach that supports inclusion, protects revenue, and nurtures innovation.” (“ADB finds flaws in Pakistan's digital sector,” The Express Tribune, 16 July 2025;“Reforming Digital,” The Nation, 16 July 2025)
In Brief
ECONOMY
Pakistan’s Budget 2025-26: Five takeaways
Swati Sood
On 26 June, the National Assembly of Pakistan passed the Finance Bill and allocated PKR 17.6 trillion for the fiscal year 2025-26. The Federal Budget 2025-26 was introduced on 10 June, nearly a month after Pakistan’s four-day military conflict with India and against the backdrop of the Iran-Israel conflict. Finance Minister Muhammad Aurangzeb upheld the budget as “balanced” and “growth-oriented.” The budget incorporated various amendments from the finance committees of both houses of parliament. All amendments proposed by the opposition were rejected. The current government’s obstinacy over the budget has not only revealed cracks within the ruling coalition but has also exposed the IMF’s grip over Pakistan’s economic decision-making.
The Budget’s ‘Statement of Purpose’ highlighted that “demand for grants for FY2025-26 primarily address debt servicing of both domestic and external obligations, as well as funding for recurrent and development expenditures aimed at revitalizing sustainable economic growth.” Natural disasters represent “the largest fiscal risk identified in the statement,” besides macroeconomic (high interest rates), revenue, debt-related, public enterprise-related, and climate change risks. Mitigation strategies are stated to consist of widening the tax base, efficient management of public expenditure to protect social welfare and development programs, extending maturities and increasing fixed borrowing to reduce interest rate shocks, public enterprise reforms to enhance financial discipline and reduce contingent liabilities, investment in climate-resilient infrastructure, and targeted subsidy programs.
1.Fiscal Consolidation versus Economic Stimulus
The budget comprises an increase in taxes to facilitate fiscal consolidation. Pakistan’s tax-to-GDP ratio for FY 2025-26 is projected to be 14 per cent. The government has set a tax collection target for the Federal Board of Revenue (FBR) at PKR 14.1 trillion. Such a target is challenging considering the government missed its annual tax collection target last year by a margin of approximately PKR 1.2 trillion. The federal budget has granted additional powers to the Federal Board of Revenue (FBR) personnel for reducing evasion. Relief has been provided to salaried individuals earning PKR 3.2 million annually, providing a benefit of PKR 56 billion. However, the impact of indirect taxes like the GST and petroleum and gas levy will be felt by the middle class, while reliance on sales tax and excise duties continues. Overall, the federal government has focused on increasing compliance rather than distributing the tax burden. Considering the FBR has failed to pursue enforcement of punitive measures for non-compliance, the effectiveness of proposed taxation measures depends on strict implementation.
For FY 2025-26, targets for the fiscal deficit are adjusted to 3.9 per cent. Last year, the fiscal deficit stood at 2.6 per cent of GDP. Widening fiscal deficit must be offset by higher economic growth. However, Pakistan’s economy is projected to grow at only 4.2 per cent for FY 2025-26. To fuel economic growth, the government must undertake fiscal expansion. Instead, public expenditure is being sharply reduced by 7 per cent to PKR 17.57 trillion in FY 2025-26. Further, last year, Pakistan underutilised its development expenditure under the Public Sector Development Programme (PSDP). One of the reasons behind this shortfall is the Finance Ministry curtailing PSDP spending to achieve quarterly and annual primary surplus targets, aligning with the IMF programme. Thus, short-term considerations to achieve fiscal consolidation have overtaken long-term priorities to induce economic growth.
Debt servicing remains the single largest expenditure item, accounting for approximately 47 per cent of total spending at PKR 8.2 trillion. Last year, the primary surplus stood at 3 per cent of GDP. This year, primary surplus projections are set at 2.4 per cent of GDP, largely driven by increased central bank foreign exchange reserves of USD 14.51 billion as of 30 June. Maintaining a high primary surplus can suppress public investment and aggregate demand, undermining long-term economic recovery. On the other hand, it can result in relatively improved external account management by reducing debt stock over a period of time. Achieving these targets will require a non-negotiable commitment: the federal government must spend less than its non-interest revenues.
2.Absence of major reforms
Structural reforms, which are a prerequisite to achieving fiscal deficit targets and a growth rate of 4.2 per cent, remain mostly absent in this year’s budget. Pension rationalization stands as an exception amidst the macroeconomic stabilization drive, focusing on meeting revenue generation targets to keep fiscal account imbalances in control rather than reducing economic inequalities or driving economic growth. No substantial measures have been introduced to address the decline in industrial sectors so as to increase investor confidence.
3.Increased Defence spending
Defence allocation has been increased by 20 per cent to PKR 2.55 trillion after Pakistan’s four-day conflict with India. This is the single largest allocation for any department, amounting to 2.5 per cent of Pakistan’s GDP. The Pakistan Army has been allocated PKR 1.17 trillion, accounting for nearly 46 per cent of the total defence budget. The air force and navy received just more than PKR 520 billion and PKR 265.9 billion, respectively.
4.Climate resilience and natural disaster preparedness
The ‘Climate Budget Statement’ acknowledges the higher fiscal risk associated with climate change and natural disasters, and the accompanying costs of mitigation strategies. Increased government spending on climate-resilient infrastructure is expected to widen the fiscal deficit in the short term. For FY 2025-26, green budgeting constitutes 6.9 per cent of the current budget and 8.2 per cent of the development budget. Almost 50 per cent of subsidies are ‘climate-responsive.’ Whereas, the ‘Disaster Budget Statement’ stipulates 1 per cent of the federal budget for natural disasters. An average disaster event could increase the fiscal deficit by as much as 1.03 per cent of GDP.
5.Gender Parity
The ‘Gender Budget Statement’ highlights that in FY 2025-26, the government allocated 6.9 per cent of the development budget to “gender sensitive areas,” amounting to approximately PKR 291 billion. Public spending of 5,000 cost centers of the federal budget has been segregated under multiple gender classifications.
References
“Federal Budget 2025-26,” Finance Division, Government of Pakistan
“Finance minister unveils Rs17.6tn budget, targets 4.2% growth,” The Express Tribune, 10 June 2025
“Highlights - Pakistan Economic Survey 2024-25,” Economic Adviser’s Wing, Finance Division, Government of Pakistan
Ariba Shahid & Asif Shahzad, “Pakistan boosts defence budget by 20% but slashes overall spending in 2025-26,” Reuters, 10 June 2025
Shahbaz Rana, “Govt misses development target,” The Express Tribune, 3 July 2025
Erum Zaidi, “Pakistan’s forex reserves with SBP reach $14.51bn in FY25, exceeding IMF’s target,” The News International, 3 July 2025
“Govt introduces significant pension reforms to reduce burden,” The Express Tribune, 11 June 2025
Abid Hussain, “How is Pakistan raising money for a 20 percent hike in defence spending?” Al Jazeera, 12 June 2025
Shahbaz Rana, “Salaried class paid Rs555b in FY25,” The Express Tribune, 4 July 2025
Traders postpone strike after agreement with the federal government over budget provisions
On 16 July, The Express Tribune reported that Karachi's business community has postponed the countrywide strike after dialogue with the government over certain budgetary provisions introduced in the Finance Act 2025. Earlier, the federal government had invited representatives of various trade bodies for negotiations after the Karachi Chamber of Commerce and Industry (KCCI), along with the business community and transporters, had announced a countrywide wheel-jam strike scheduled for 19 July, protesting against five contentious measures incorporated in the federal budget for the current fiscal year. On 15 July, according to the Ministry of Finance, a joint meeting was held with business community representatives, chaired by Finance Minister Muhammad Aurangzeb. In the meeting, a detailed review of the traders’ concerns was conducted regarding Section 37A and other controversial provisions of the Finance Act 2025. During the session, a committee was formed under the Special Assistant to the Prime Minister, Haroon Akhtar Khan. Further, it was decided that the strike would be postponed until the committee completes its mandate. The finance minister assured traders of the government's full cooperation, stating that the government’s objective is to reduce tax fraud on a large scale and not to trouble honest businesses. The committee is likely to hold detailed discussions over the next 30 days and present a “consensus-based, practical solution” to the cabinet. (Irshad Ansari, “Traders call off strike after agreement with govt,” The Express Tribune, 16 July 2025)
Govt increases fuel prices following an increase in global crude oil prices
On 16 July, The Express Tribune reported that the federal government has increased fuel prices following an upward trend in global crude oil prices. According to a notification issued by the Finance Division on 15 July, the petrol price has been increased by PKR 5.36 per litre from PKR 266.79 to PKR 272.15 per litre. High-speed diesel (HSD) costs amount to PKR 284.35 per litre. This change will take effect immediately from July 16 for the next 15 days. (“Govt strikes again with fuel price hike,” The Express Tribune, 16 July 2025)
POLITICS
ANP to convene ‘Pakhtun Jirga’ and All Parties Conference to discuss deteriorating law and order situation in KP
On 16 July, The Express Tribune reported that the Awami National Party (ANP) has announced that it will convene a Pakhtun Jirga in Peshawar and an All Parties Conference (APC) in Islamabad to discuss a range of issues concerning Khyber Pakhtunkhwa, such as the deteriorating law and order situation, targeted killings, minerals bill, provincial rights and the potential abolition of the 18th Amendment. ANP President, Aimal Wali Khan, raised the issue of the death of the party’s senior leader and central secretary for Ulema Affairs, Maulana Khan Zeb, in an incident in Bajaur. Bajaur is considered to be a stronghold of state institutions. The ANP President accused state authorities of being responsible for Zeb’s murder and stated that he will write a letter to PM Shehbaz Sharif to investigate the killing. Further, the people of Bajaur warned that a street agitation will be held if a judicial commission is not formed to investigate the murder. They also demanded the inclusion of a member of Maulana Khan Zeb's family in the proposed commission to maintain transparency and justice, declaring that they will approach international forums if justice is not granted within the country. ANP leaders also argued they cannot be forced to backtrack from the 18th or 25th Constitutional Amendments through intimidation, terrorism, and killings, pointing out that “the entire nation knows” who is responsible for terrorism ranging from Waziristan to Bajaur. (“ANP to convene 'Pakhtun Jirga', APC,” The Express Tribune, 16 July 2025)
JUDICIARY
Islamabad High Court orders investigation into surge in online blasphemy cases
On 16 July, The Express Tribune reported that the Islamabad High Court has ordered an investigation into allegations that youth are being entrapped in online blasphemy cases following appeals from hundreds of families. There has been an increase in cases of young men being arrested for committing blasphemy on online platforms like WhatsApp since 2022. Justice Sardar Ejaz Ishaq Khan stated that the government will form a commission within 30 days and that the commission is mandated to submit its findings within four months. A report published by the National Commission for Human Rights in October 2024 highlighted that approximately 767 people, mostly young men, were detained in jail, awaiting trial over blasphemy charges. Additionally, a similar report by the Punjab Police, leaked to the media in 2024, revealed that “a suspicious gang was trapping youth in blasphemy cases.” The Legal Commission on Blasphemy Pakistan (LCBP) is known to be one of the most active lawyer groups prosecuting young men for online blasphemy in Pakistan. Imaan Mazari, a lawyer who represents the families of arrested people, stated that many youngsters are falsely framed in cases of such a sensitive nature that “the stigma will last forever even if they are acquitted.” In the past few years, several individuals have been convicted and given death sentences, but no executions have been carried out for blasphemy in Pakistan. (“IHC orders probe into online blasphemy spike,” The Express Tribune, 16 July 2025)
ENERGY, ENVIRONMENT & WATER
Nine people lose their lives in Punjab due to monsoon rain
On 16 July, Dawn reported that nine more people have lost their lives due to intense rain in Punjab. The “rain-related incidents” also resulted in the wounding of 92 people in the province. Lahore’s district administration enforced an overarching and “coordinated strategy” to help people in combating the impacts of heavy rain. The Deputy Commissioner of Lahore, Syed Musa Raza, has instructed the concerned authorities to speed up the “clearing” process of clogged water. As per the Provincial Disaster Management Authority (PDMA), there is an increased likelihood of heavy downpours in Lahore, Rawalpindi, Gujranwala, Sargodha, Multan, Sahiwal, Bahawalpur, Jhelum, Attock, and various other cities and towns of Punjab. (“Nine more die, 92 injured in rain-related incidents in Punjab,” Dawn, 16 July 2025)
Federal Minister for Climate Change and SPAR6C discuss steps to increase Pakistan’s capability to take part in “international carbon markets”
On 15 July, Musadik Malik, who is the federal minister for climate change, met a team of Supporting Preparedness for Article 6 Cooperation (SPAR6C). SPAR6C is a “five-year programme” that began in 2022 to assist Pakistan, Colombia, Thailand, and Zambia in increasing their capacity to take part in “international carbon markets” under Article 6 of the Paris Agreement. As per a communique released after the discussions were concluded, the two sides delved into measures for enhancing Pakistan’s capability to cooperate under Article 6. The two sides also examined the support given to the students of Pakistan who are being provided training and would carry out research in accordance with Article 6. (“Pakistan, SPAR6C explore carbon market,” The Express Tribune, 16 July 2025)
EXTERNAL
Pakistan and Indonesia look towards enhancing bilateral defence relations
On 16 July, the Defence Minister of Indonesia, Sjafrie Sjamsoeddin, held a meeting with Prime Minister Sharif in Islamabad. The Indonesian defence minister reaffirmed his country’s willingness to enhance defence cooperation with Pakistan and look for more areas for collaboration, particularly in “defence production.” PM Sharif reiterated Islamabad’s resolve to enhance cooperation with Indonesia in “joint ventures of investment in mutually beneficial projects.” PM Sharif spoke about how the two countries have witnessed a “longstanding friendship rooted in shared cultural, religious and historical bonds.” He also examined the progress of the measures taken under the “Pakistan-Indonesia Defence Cooperation Agreement” and reaffirmed his willingness to speed up the “implementation of key areas of mutual interest.” On 15 July, the defence minister of Indonesia held a meeting with Chief of Army Staff Asim Munir in Rawalpindi, where the two leaders discussed enhancing defence relations. The two leaders deliberated on their stances on “regional security, defence cooperation,” and areas where they could increase defence cooperation. The Indonesian defence minister applauded the Pakistani military for its efforts in combating the threat of terrorism.
On 16 July, an editorial in The Nation titled “Indonesian Approach,” described the visit of the defence minister of Indonesia, who has expressed readiness to expand defence ties, as a “promising development.” As per the editorial, this would lead to more development of the defence industry of Pakistan and underscore the country's “military capabilities and strategic maturity of foreign policy.” According to the editorial, because Pakistan has established its expertise in providing inexpensive “defence solutions,” Indonesia sees Pakistan as a “valuable partner.” The editorial called for deepening of “strategic” relations between the two countries, which should include collaboration in the economic sector, “regional diplomacy, and technology exchange.” (“Pakistan, Indonesia discuss defence ties,” The Express Tribune, 16 July 2025; “Indonesian Approach,” The Nation, 16 July 2025)
Interior Minister Naqvi congratulates Iranian President for “great victory” in the conflict with Israel
On 16 July, Minister for Interior Mohsin Naqvi held a discussion with the President of Iran, Masoud Pezeshkian, in Tehran, Iran. In his discussion with the President, issues related to “mutual interest” and bilateral ties were delved into. The interior minister congratulated the Iranian President for the “great victory” against Israel in the recent conflict. The Iranian President highlighted the significance of bilateral relations in the discussion and pledged that Iran “will never forget” Pakistan’s backing for Tehran in the conflict. (“Naqvi vows deeper ties with Iran,” The Express Tribune, 16 July 2025)
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