Zafar Iqbal
There is a particular kind of official optimism that Pakistan’s economic managers have perfected over the decades. It involves releasing numbers that, on paper, point upward, while the lived reality of ordinary Pakistanis points in the opposite direction. The latest round of fiscal data — the Finance Division’s Summary of Consolidated Federal and Provincial Fiscal Operations for July to March 2026 — is a masterclass in this tradition. The numbers are there. The analysis that honestly interrogates them is not.
On the very day this report was released, the State Bank of Pakistan published its own half-yearly assessment covering July to December 2025. The SBP, to its credit, acknowledged that macroeconomic stability had strengthened during that period. But it also issued a warning that the Finance Ministry had been careful not to amplify: the Middle East war, which broke out on February 28 this year, poses serious risks to Pakistan’s economic outlook. Inflation, trade flows, and growth are all potentially in the line of fire. The convenient fact, of course, is that this war falls outside the July-December data window, which means the SBP’s stability narrative remains technically intact even as the ground shifts beneath it.
One data point that genuinely deserves attention is the surge in remittances. In March alone, inflows rose by 33.2 percent, reaching 28 billion dollars — a significant boost to Pakistan’s balance of payments at a moment when external financing is under constant strain. But even this silver lining carries a shadow. Reports indicate that Pakistani workers in the United Arab Emirates may face difficulties renewing their work visas, particularly in the aftermath of Pakistan clearing a 3.45 billion dollar UAE loan last month. Saudi Arabia has extended a 3 billion dollar rollover to help fill the gap, but the message is clear: Pakistan’s external position remains structurally fragile, dependent on arrangements that can shift without warning.
The more revealing picture emerges when this year’s fiscal data is placed side by side with the comparable period from the previous year. That comparison exposes several uncomfortable realities that the headline figures tend to obscure.
Start with GDP. Last fiscal year, the government projected growth at 3.6 percent, but the actual outcome was 3.04 percent, meaning the projected nominal GDP of 114,692 billion rupees was not achieved. This year, the SBP is projecting a range of 3.75 to 4.75 percent growth — an optimistic band by any measure. The existing industrial base does not share that optimism. Factory owners and manufacturers have been consistent in their complaint that Pakistan’s input costs are far too high to compete regionally. The recent increase in the policy rate to 11.5 percent has added further pressure. The All Pakistan Textile Mills Association has reported that around 150 units have already shut down. Against this backdrop, the projected nominal GDP of 129,567 billion rupees for the current year looks aspirational at best. And if that figure is not achieved, every macroeconomic indicator expressed as a percentage of GDP becomes misleading.
The trajectory of current expenditure offers another point of concern. Federal government current expenditure was recorded at 14,588 million rupees in July-March 2025, compared to 14,267 million rupees in the same period this year. The decline was anticipated in the budget, and it was premised on a falling policy rate. That assumption appeared sound when the rate was brought down from 20.5 percent in June 2024 to 11.5 percent by June 2025, and then further to 10.5 percent. But contrary to expectations, the rate was raised back to 11.5 percent last month. The declining expenditure narrative now rests on a foundation that has quietly cracked. Meanwhile, domestic borrowing continues to climb without restraint, suggesting that the government’s financing requirements are not being brought under control.
The circular debt situation adds another layer. The government borrowed 1.25 trillion rupees to clear circular debt liabilities. As has always been the case, the interest cost of this borrowing will be transferred to consumers through energy prices. This borrowing was secured when the policy rate stood at 10.5 percent, and it remains uncertain how the subsequent 100 basis point increase will affect what the public ultimately pays for electricity.
The development budget continues to bear the brunt of IMF fiscal consolidation targets. Against a budgeted allocation of one trillion rupees for the Public Sector Development Programme, only 332,996 million rupees have actually been released this year. Last year, the same period saw 309,408 million rupees disbursed — a modest increase, but one that still falls catastrophically short of the stated target. Public investment, which ought to be the engine of future productivity, is being sacrificed year after year to hit targets that serve creditors more than citizens.
On the revenue side, sales tax remains the federal government’s dominant collection tool, bringing in 3.1 trillion rupees against 2.8 trillion rupees in the same period last year. But the composition of this revenue deserves more scrutiny than it receives. A substantial portion of what is classified as direct tax revenue is in fact collected through withholding taxes, which function in practice like an indirect tax. Their burden falls disproportionately on ordinary people rather than on the wealthy. This is precisely why poverty levels in the country continue to rise even as revenue collection figures improve. The FBR chairman has publicly celebrated collections under enforcement measures, and the Prime Minister has reportedly encouraged doubling them next year. What receives far less attention is the mounting grievance among taxpayers who describe arbitrary and coercive recovery practices, and who must navigate a slow and costly legal process — from tribunal to court — before they can obtain any relief.
And then there is the statistical discrepancy, which may be the most telling figure of all. In July-March 2025, this discrepancy stood at 205,691 million rupees. In the same period this year, it has swung to negative 443,554 million rupees. That is a massive and unexplained gap between what the data says and what the underlying accounts show. It is also the most honest explanation available for why the official numbers look far more cheerful than the experience of taxpayers, low-income earners, and the poor. The feel-bad factor that pervades Pakistani society is not irrational sentiment. It is a rational response to a reality that the statistics are not fully capturing — or are not fully meant to.
