Editorial
The federal budget for FY2025-26 appears more an exercise in optimistic accounting than a document rooted in economic realism. Despite the claim of fiscal prudence, deeper scrutiny reveals structural fragilities, politically expedient choices, and a persistent reliance on IMF signals rather than internal reform conviction.
At the heart of this budget lies the assumption that lower interest rates will ease pressure on current expenditure. Indeed, the budgeted figure of Rs16.286 trillion—slightly below the revised Rs16.390 trillion for 2024-25—leans heavily on reduced debt servicing due to the declining discount rate. Yet, the IMF has already cautioned Pakistan against prematurely loosening monetary policy. The central bank remains under intense political pressure to ease rates further, risking both inflationary resurgence and a derailment of the fragile IMF programme, on which $16 billion in rollovers and multilateral support hinge.
The implications are already visible: national savings schemes will shrink by 17%, and subsidies have been slashed by Rs192 billion. These cuts may satisfy IMF benchmarks, but could prove fiscally irresponsible if inflation rebounds or the power sector renegotiations falter. Pension reform remains cosmetic—no structural recalibration, just restrictions on reemployed pensioners.
Revenue targets also raise eyebrows. The FBR’s targeted 20% increase seems ambitious, especially when 51.5% of taxes will be indirect—disproportionately burdening the poor. Meanwhile, withholding taxes—indirect in nature—are dishonestly booked under direct taxation, a practice even condemned by the Auditor General. The petroleum levy, an indirect consumer tax, is projected to grow by 26%, directly impacting household expenses.
External financing offers no comfort either. Net inflows are estimated at a paltry Rs105.5 billion—barely enough to cover the increase in civil government expenses. Development spending is the sacrificial lamb again, with the Public Sector Development Programme cut by nearly 29%.
While BISP’s 21% increase appears substantial, it remains inadequate against the backdrop of 44.2% poverty. Without structural economic transformation, targeted welfare alone won’t stem rising inequality.
In essence, Budget 2025-26 gambles on best-case scenarios while ignoring long-term reform imperatives. It is a political stopgap, not a policy breakthrough.
