Finance Minister Muhammad Aurangzeb is all set to unveil next year’s budget on June 10. In the days leading up to his much-anticipated budget speech on the floor of the National Assembly, much is being discussed in the public domain on what could be and shouldn’t be on the government’s priority list.
At a pre-budget meeting last week, Aurangzeb promised to shift the tax burden away from the salaried class and the documented sector to others through digitisation. He hinted at significant steps towards the compulsory use of digital payments to maximise a cashless economy and increase documented transactions.
At a public event the same week, he also announced that the upcoming federal budget would introduce “bold measures” to steer the national economy in a strategic direction.
Dawn.com reached out to leading economists for their thoughts on the upcoming budget. Here’s what they had to say:
Not just a spreadsheet exercise
Ali Hasanain, associate professor of economics at the Lahore University of Management and Sciences, said that the government faces a uniquely narrow policy corridor as the country prepares to table its federal budget for the fiscal year 2025-26.
“On one side lie our binding fiscal constraints, which demand a primary surplus of 1.6 per cent of GDP (gross domestic product) and steep revenue enhancements if we are to find a path out of our debt. On the other hand is a range of domestic and geopolitical pressures, from defence sector demands to the fallout of intensifying global tariff wars, particularly between the US and China.”
“The defence budget, though nominally growing, has shrunk dramatically in real terms over the past five years — by nearly $4.6 billion according to Jane’s Defence Budgets. Restoring defence purchasing power is a top priority, especially after recent skirmishes on Pakistan’s eastern border,” he stated, referring to the recent Pakistan-India escalation.
However, a knee-jerk reaction would be folly, Hasanain noted, adding that full nominal recovery of that spending would consume an additional 1.13pc of GDP — nearly the entire fiscal buffer painstakingly constructed under the International Monetary Fund programme. “Doing so risks derailing hard-won macroeconomic gains, would almost certainly crowd out critical social and development spending, and ultimately — due to its unsustainable nature —defeat the goal of sustainably improving our regional security outlook.”
“The government has shown its intent to broaden the tax base through new levies on retailers, wholesalers, and petroleum sales, while also offering some relief to the salaried class. These are steps in the right direction, but they will test political capital and administrative capacity alike,” the academic commented.
At the same time, he highlighted that the global trade environment is darkening. With the US and EU considering tariff escalations on Chinese electric vehicles and other AI-intensive exports, Pakistan must prepare for further volatility. “We should be creating fiscal space to reposition our export sectors, attract diverted FDI, and invest in logistics and trade facilitation. A budget that is locked into the past — whether via subsidies or unreformed pensions — risks missing the window to adapt.”
“In short, this budget is not just a spreadsheet exercise. It is a test of vision. Pakistan must demonstrate that it can meet its defence needs without compromising its economic future — and that it is ready to claim a place in the new global industrial realignment. That will require discipline, but also courage to prioritise what builds long-term resilience over short-term optics,” Hasanain added.
Towards a private-sector-oriented economy
“The upcoming budget will continue to prioritise macroeconomic stability,” said macroeconomist Ammar H Khan. “It is expected that the budget will continue to focus on maintaining a primary surplus, while utilising available room in financing costs to reallocate the same to incremental defence allocation, and infrastructure development.”
He emphasised that rationalising expenditures should remain a key priority; any laxity in this regard can lead to higher deficits and, eventually, higher debt to finance.
“Any adventures in extracting growth through higher government spending, or import-driven consumption, may lead to a short-lived growth spurt followed by another few years of low-to-no growth,” Khan said. “Macroeconomic stabilisation should be prioritised, and a move away from import-driven consumption-oriented growth, to an investment-driven and export-oriented growth model is the only way forward.”
“A potential tariff liberalisation regime, wherein excess duties and tariffs are expected to be either completely removed or rationalised, can be a highlight for the budget, as that would signal a shift away from a protected trade regime, to a more export-oriented regime,” he stated, adding that taxes on imports are effectively taxed on exports, and rationalising the same is the only way forward if “we want to move towards an export-oriented growth structure”.
The evolving composition of tax revenues would be critical, the macroeconomist noted. “Any excess reliance on salaried employees, or higher indirect taxes, is only going to expand the informal economy, while chipping away at any efforts for deepening the tax net,” he explained, adding that the current taxation structure is regressive at best, actively discouraging any value addition.
“It makes more economic sense to evade the tax net by producing low-value-added products, as any transition towards higher value-added attracts a significant tax, which makes the business uncompetitive. Similarly, the tax delta that exists between the formal and informal economy is substantial, which penalises entrepreneurs taking risks,” he explained. “One expects that some of this would change if we are to move towards an indigenous, economic-output-oriented growth structure, rather than one that only relies on imports.”
Speaking of the upcoming budget, he said it is expected to gradually transition towards a more private-sector-oriented economy, with a greater focus on enhancing formal savings, in a way that the same can be converted into investments. “The inability to expand the savings net, while imposing more taxes to extract another ounce (there is no pound left anymore) of flesh, will only constrain growth in the mid-to-long term.
“The expectation here is that the budget will prioritise stabilisation, and slowly transition towards growth, rather than going all out for growth, and sacrificing any gains made in the last few years in the process,” Khan added.
Is the government ready to break from routine?
“The budget 25-26 should be grounded in facts, centred around people’s needs, supportive businesses, and fully transparent,” stressed economic journalist Afshan Subohi.
“The government must move away from policies that disproportionately burden the voiceless majority to compensate for inefficiencies in governance and systematic flaws in the energy sector,” she stressed. “Rather than relying on token cash handouts, the budget should prioritise the revival of agriculture and industry to spur job creation and offer citizens the opportunity to earn a dignified livelihood.”
She emphasised that the tax structure must be reformed to make it more progressive by increasing the share of direct taxes by at least 5pc points. “It is unjust to impose income tax on families subsisting below the poverty line; the income tax exemption threshold should be raised to Rs1,300,000 from the current Rs500,000. The tax rates on the middle class must be scaled down.”
The journalist was also of the opinion that the rate of super tax should be moderated, while the tax net should be broadened. Moreover, she continued, the government must reduce the petroleum development levy to ensure that the benefits of falling global oil prices are passed on to the masses.
“Whenever there is a resource crunch, the Public Sector Development Programme (PSDP) is the first to face cuts. In the current fiscal year, under 50pc of the chopped PSDP has so far been disbursed. Given the private investor’s reluctance to invest in the current conditions, the government must not only increase development spending but also ensure its timely disbursement.
“It should also engage with the military hierarchy to explore the possibility of funding additional security-related needs through their commercial ventures, at least for the next fiscal year,” she said.
Afshan highlighted the need for the federal government to shut down redundant departments, which will cut recurring costs, tighten oversight of overseas travel and wasteful spending, and promote technology by supporting startups through incentives, policy support, and funding access.
“It is high time the government takes decisive steps to improve the collection and dissemination of relevant economic data and encourages provinces to systematically report key economic indicators through regular publication of provincial economic surveys.
“These suggestions align with IMF guidance and serve Pakistan’s long-term interests. The real test is whether the government is ready to break from routine and embrace a new path,” she added.
Military budget — the big job
Economist and academic Aadil Nakhoda said that the finance ministry has found itself facing significant challenges as the upcoming budget not only involves plans to cut import duties and tariffs, impose petroleum levy and carbon taxes, but also increase the military budget amid the possibility of intense border conflicts.
“The tariff liberalisation involves a drastic reduction of customs tariffs to 7pc in the next five years, while reducing the number of duty slabs from five to four and peak tariffs on imports from 20pc to 15pc. The revenues from customs tariffs may decrease by more than Rs 250 billion.
“However, the government expects that the increase in economic activity because of these drastic cuts may lead to not only higher revenue generation from direct taxes but also indirect taxes as import volumes subsequently increase due to the measures.”
According to Nakhoda, incentives to purchase imports from informal and grey channels may see a significant reduction as tariffs fall. Hence, the revenue may increase even without incurring significant losses, as importers may formally declare their imports to the government.
“Further, it is expected that exporting activities may increase as businesses find not only greater competition in the domestic market due to the increase in competing imported varieties, but may also adopt more efficient production methods in the face of increasing competition. Therefore, it has become increasingly important to improve the domestic business environment through market reforms such that innovation is encouraged.”
The economist further predicted that the government was also likely to increase the petroleum levy on fuel products and impose carbon taxes on older vehicles. “Both these measures may increase government revenue, but at the same time push consumers towards more environmentally friendly substitutes, lowering carbon emissions and improving the standard of living.”
Therefore, replacing older technologies with more efficient ones is also likely to boost efficiency and productivity. It may also result in lowering the demand for imported fuel products, which is a major component of the import bill, he added.
Lastly, Nakhoda highlighted that the military budget will inadvertently increase as the risk of border conflicts is high, but alerted that this may hurt development programs as well as funding of other sectors such as health and education.
“However, the recent conflict has seen a shift from using army personnel as a primary resource towards the use of machines and technology. This itself can have an impact on not only the financing of the military budget but also the size of the army,” he said.
Need to embed sustainability measures
“There are a few things that will remain standard in the budget, which will focus on stabilisation because it is being prepared along with the IMF,” said Sajid Amin Javed, who writes on macroeconomic policy.
According to him, not much relief can be expected in the budget, and whatever will be there will be minimal. “The government’s efforts to provide relief to the salaried class … that discussion is still pending with the IMF. So the first two to three slabs of the salaried class may get some sort of relaxation.”
He believes that there might not be a lot of effect on the tax rate, especially the upper slabs. But it is expected that taxable income will be increased from Rs600,000 to the Rs1-1.2 million range. “The government is trying to avoid new taxes as it has realised that there already is a lot of burden on people within the tax net.”
The macroeconomist also believes that Pakistan will see an increase in terms of defence expenditure.
“Another thing I see, as far as commitment and announcement is concerned, is bringing new sectors into the tax net, such as agriculture and textiles,” he said. “There will be some leniency for the real estate sector, whether it is explicit or implicit. Because the government realises that if economic activity needs to be increased and the growth rate target for next year needs to be increased, the real estate sector plays a pivotal role in it.”
So, tax rates can be adjusted, and proposals have been sent to the IMF.
For the common man, Amin noted, the upcoming budget will be “balanced” as compared to the previous two years. But it won’t have a lot to give, he warned.
“In my opinion, the government should try its best to provide relief to the salaried class, and the taxable income should be increased. Another direction that the government needs to set is to what extent these taxes will support investments, because I feel the focus this year, too, will be on revenues, as our target is huge.
“Last year, we saw that we couldn’t meet our targets even with high inflation. The government must balance, because we have been very focused on revenues for the IMF programme and meeting its targets. Our focus was also stabilisation, which is why taxation policies were tight. But now I feel the government must embed sustainability measures in the budget. And one big indicator in this is to support livelihoods for the common man,” the macroeconomist pointed out.
On a positive note, Amin said that he felt the budget will not be as tough as the previous two times, but at the same time, it will also not be as relaxed as the government wants it to be.
“In the context of PSDP, some schemes that were subject to delays or were at an early stage may be shelved, and the angle of expenditure reprioritisation of the IMF will be incorporated. We can expect this year’s PSDP to be a little less than that of last year,” he added.
