Breaking down Pakistan's Rs17,573bn budget for 2025-26
Budget Outlay
The federal government on Tuesday unveiled a Rs17,573 billion budget for the fiscal year 2025-26, aimed at stabilizing the economy, containing inflation, and meeting key targets under the ongoing program of the International Monetary Fund (IMF).
Finance Minister Muhammad Aurangzeb presented the budget in the National Assembly, emphasizing fiscal discipline while allocating increased funding for development, social welfare, and defence.
Here is the breakdown of the budget.
The federal budget for fiscal year 2025-26 proposes a total outlay of Rs17,573 billion, marking a 6.9% reduction compared to the previous fiscal year's budget. This outlay figure represents the combined total of government expenditures and net lending allocations.
Starting his speech, the finance minister said he was honoured to present second budget for the incumbent government. He thanked Prime Minister Shehbaz Sharif, Bilawal Bhutto Zardari, Khalid Maqbool Siddiqui and others for their support in the budget.
Federal Minister for Finance and Revenue, Senator Muhammad Aurangzeb, laid the following papers during the National Assembly’s Budget Session (2025-26):
— National Assembly (@NAofPakistan) June 10, 2025
1.Annual Budget Statement (2025-26), along with the Revised Estimates for FY 2024-25.
2.Demands for Grants and Appropriations… pic.twitter.com/GhVzATi93Q
He said the timing of the budget was historic as the whole nation was united against India during the recent tensions.
"This budget comes at a pivotal time for our nation's future," he mentioned, praising the nation's military and political leaders for their "successful handling of war-like situation" with India.
Rightsizing of 10 ministries
The minister said that approval had been granted for rightsizing of 10 ministries. 40,000 vacant positions have been eliminated, proposals regarding eight ministries are under consideration, he added.
He said that reforms had been made in the pension scheme.
Withholding tax rates
Finance Minister Muhammad Aurangzeb proposes to reduce withholding tax rates on property purchases from 4% to 2.5%, from 3.5% to 2%, and from 3% to 1.5%.
Agricultural, Industrial and Services sectors
The government also proposed a 4.5pc growth target for the agriculture sector. Meanwhile, a national committee would be established to coordinate on this subject between the centre and provinces. Moreover, small farmers would be given loans aimed at uplifting them. The growth is set at 4.3pc for industrial development, and 4pc for the services sector.
Export target
Export target has been set at $35.30 billion while import target has been set at $65.20 billion, remittance target has been set at $39.4 billion. Current account deficit for the next fiscal year has been allocated at $2.1 billion, export target for next fiscal year has been set at $35.30 billion while import target has been set at $65.20 billion.
Rs133bn allocated for Water Ministry
The Finance Minister informed that in view of Indian aggression and violation of Indus Waters Treaty, Pakistan has allocated Rs133 billion for Ministry of Water Resources in next fiscal year to store water and prevent wastage. Rs3.2 billion allocated for K-IV in Karachi. The government has allocated Rs3.2 billion for Karachi water project K-IV in fiscal year 2025-2026. Funds allocated for dams. Rs32.7 billion for Diamer Bhasha Dam, Rs35.7 billion for Mohmand, Rs5 billion allocated for Awaran Panjgur including 3 other dams in Balochistan. Uniform sales tax being imposed on all vehicles.
18% sales tax on all vehicles
The Finance Minister informed that uniformity is being brought in sales tax on vehicles using petrol, diesel or hybrid, it is proposed to impose 18% sales tax on all vehicles. E-commerce platforms will collect and deposit 18% sales tax from delivery couriers and logistics service providers. Federal non-tax revenue target will be Rs5,147 billion.
Withholding tax increased on cash withdrawals by non-filers
The government on Tuesday increased the tax ratio on cash withdrawals by the non-filers in the budget for FY2025-26.
In the budget for FY 2025-26, the tax ratio on cash withdrawals by non-filers has been increased from 0.6pc to 1pc.
Meanwhile, non-filers will no longer be allowed to open bank accounts.
In addition, they will be barred from investing in securities and mutual funds. The move is aimed at curbing undocumented cash transactions and encouraging tax compliance.
According to the budget document, non-filers will also be prohibited from purchasing vehicles or immovable property.
To expand the tax base and enhance enforcement, the government has decided to engage the external auditors.
Tax relief for salaried class
The government has announced significant tax relief for the salaried class in the new budget, reducing tax slabs across all income levels.
The decision is expected to ease financial pressures on the salaried segment amid rising inflation.
According to the budget speech, individuals earning between Rs600,000 and Rs1,200,000 annually will now be taxed at a reduced rate of just 1 per cent.
Read also: Salaried class likely to get tax relief in budget after IMF nod
Moreover, for those earning Rs1.2 million per year, the proposed tax has been slashed from Rs30,000 to Rs6,000—offering substantial relief to middle-income earners.
NFC Award
After providing almost 60% share to the provinces under the federal divisible pool (FDP) under the NFC Award, the provinces might secure Rs8,000 billion in the coming budget.
So the Centre will be left with the revenues of Rs6 trillion and non-tax revenues of Rs4 or Rs4,500 billion.
Rs18.5bn allocated for Education
Finance Minister Aurangzeb stated that 26 million out-of-school children pose a significant challenge. Rs9.8 billion has been allocated for establishing 11 new Danish Schools, while Rs18.5 billion has been set aside for additional education projects.
For higher education, Rs39.5 billion has been provided to HEC for 170 projects. In FY2025-26, Rs4.8 billion has been allocated for 31 science and technology initiatives. Special attention is being given to establishing Danish Schools for talented students from underprivileged areas.
Muhammad Aurangzeb mentioned that plans are underway to establish 11 new Danish Schools. Rs3 billion has been allocated for the reconstruction of schools in Sindh affected by the 2022 floods.
18% tax imposed on import of solar panels
Finance Minister said that to bring equity in the sales tax system and address its long-standing flaws, the following measures are being proposed.
He explained that to ensure fair competition between imported and locally manufactured solar panels, it is proposed to impose an 18% tax on the import of solar panels.
He added that this step will play a significant role in promoting the local solar panel industry in Pakistan.
Tax exemptions for merged districts of Balochistan, KP eliminated
The federal government has decided to eliminate tax exemptions for the merged districts of Balochistan and Khyber Pakhtunkhwa in the new fiscal year 2025-26 budget.
Finance Minister Aurangzeb presented the budget and stated that tax exemptions previously granted to the merged districts of Khyber Pakhtunkhwa and Balochistan have been abolished in the upcoming budget.
In his budget speech, he explained that a phased sales tax will be imposed on businesses in the merged districts over the next five years. For the upcoming fiscal year, a 10% sales tax will be imposed on businesses in the merged districts.
Rs14.3bn allocated for Health
The government has allocated Rs14.3 billion for completion of health sector projects for fiscal year 2025–26.
The allocation was made with a strategic focus on improving healthcare infrastructure, disease surveillance, preventive medicine, maternal care, and emergency preparedness across the country.
An amount of Rs4 billion has been allocated for Jinnah Medical Complex and Research Centre, Islamabad, while Rs1 billion was allocated for the Prime Minister's Hepatitis C Eradication programme.
The government has also allocated an amount of Rs2 billion for the development of the Integrated Disease Surveillance and Response System (IDSRS).
Furthermore, Rs1.7 billion was allocated for the establishment of a cancer hospital in Islamabad.
An amount of Rs900 million has been allocated for the procurement of equipment for the federal capital's cancer hospital in federal capital.
Budget Deficit
According to budget, the current account deficit for FY 2025–26 is estimated at Rs6,500 billion.
The export target has been set at $44.3 billion, while imports are projected at $65.2 billion. In the services sector, the export target is $9.6 billion and the import target is $14 billion.
Key factors contributing to the fiscal deficit include a rise in current spending and a decline in non-tax revenue, projected at Rs3.9 trillion, mainly because of reduced profits from the State Bank of Pakistan (SBP).
Inflation
The federal government has set an inflation target of 7.5% for FY2025-26 in an effort to stabilise prices and curb inflationary pressures.
This move follows a volatile inflation trend in recent years. In FY2020-21, actual inflation recorded at 8.9%, which exceeded the target of 6.5%.
In FY2021-22, the actual inflation was recorded at 12.2%, higher than the set target of 8.2%.
However, the situation worsened significantly in FY2022-23 when inflation soared to a staggering 29.2%, far above the 11.5% target, driven by global economic disruptions and domestic supply constraints.
In FY2023-24, inflation slightly eased to 23.4%, but it still remained well above the 21% target. Encouragingly, a substantial improvement is expected in FY2024-25, with the actual inflation projected to drop to 4.7%, against an earlier forecast of 12%.
This anticipated drop indicates that recent monetary and fiscal measures may be taking effect.
Setting the target at 7.5% for FY2025-26 reflects the government’s cautious optimism. While the recent dip in inflation is promising, maintaining price stability in the long term remains a critical challenge. The government’s ability to meet this target will depend on both global economic trends and domestic policy consistency.
Revenue Targets
The government has set the FBR’s revenue collection target at Rs14,103 billion for FY2025-26. This estimate is based on expected measures such as imposing GST on petroleum products, taxing retailers and wholesalers, and eliminating certain exemptions.
The FBR’s tax-to-GDP ratio is projected to rise to 11.3% in FY26, up from 10.3% in FY25.
Over the past five fiscal years, Pakistan’s revenue targets and collections have shown both progress and inconsistency. In 2019–20, the Federal Board of Revenue (FBR) surpassed its revenue target of Rs3,907 billion, collecting approximately Rs3,997 billion, despite a challenging economic environment due to the onset of COVID-19.
In 2020–21, the government set a higher target of Rs4,963 billion, and the FBR collected Rs4,725 billion, achieving about 95% of the goal. This reflected a gradual recovery from the pandemic’s initial impact.
During 2021–22, the target rose to around Rs6,943 billion in tax revenue. However, actual collections were about Rs6,126 billion, indicating an achievement rate of nearly 88%. The gap was attributed to economic disruptions and administrative challenges.
In 2022–23, the revenue target was Rs7,470 billion, and the FBR collected approximately Rs 7,164 billion, achieving roughly 96% of the target.
Most notably, in 2023–24, the FBR set a historic target of Rs9,252 billion and exceeded it by collecting Rs9,306 billion. This marked a significant achievement and showed improvements in tax administration and compliance.
Overall, the data reflects gradual growth in revenue targets, with varying degrees of success in meeting them.
PSDP Allocation
The federal government has set aside Rs1,000 billion for the Public Sector Development Programme (PSDP) for the next fiscal year, prioritizing infrastructure, energy, water, and regional development initiatives.
As per documents, Rs662 billion is allocated to 31 federal ministries and divisions, while Rs332 billion is reserved for state-owned entities, including the National Highway Authority.
The government also proposed a 4.5pc growth target for the agriculture sector, 4.3pc for industrial development, and 4pc for the services sector.
The federal government has set aside Rs1,000 billion for PSDP, down by Rs400 billion compared to outgoing fiscal year's Rs1,400 billion.
The federal government will borrow Rs270 billion from abroad to fund this Rs1,000 billion spending.
Key proposed allocations in PSDP 2025-26:
Water projects: Rs140 billion
Power projects: Rs104 billion
Pakistan Railways: Rs24.71 billion
Ministry of Planning projects: Rs12.32 billion
Ministry of Defence: Rs11.55 billion
Space & Upper Atmosphere Research Commission (Suparco): Rs24.15 billion
Azad Jammu and Kashmir & Gilgit-Baltistan: Rs82 billion
Merged districts in Khyber Pakhtunkhwa: Rs70.44 billion
Provincial projects: Rs93.44 billion
Higher Education Commission (HEC): Rs45 billion
National health projects: Rs15.34 billion
Ministry of Interior: Rs10.90 billion
Pakistan Atomic Energy Commission: Rs4.75 billion
Ministry of Parliamentary Affairs: Rs3 billion
Ministry of Maritime Affairs: Rs3.36 billion
Food security initiatives: Over Rs2 billion
In outgoing fiscal year 2024-25, the federal development program experienced a significant jump of 47%, reaching Rs 1,400 billion.
GDP Growth Rate
Finance Minister Muhammad Aurangzeb said the 2025–26 federal budget marks the start of a broad strategy aimed at shaping a competitive economy.
He stated that GDP is projected to grow by 4.2%, with average inflation expected at 7.5% in the coming fiscal year. The budget deficit is targeted at 3.9% of GDP, and a primary surplus of 2.4% is anticipated.
"This budget focuses on boosting exports, building foreign reserves, correcting payment imbalances, and increasing productivity," he said, adding that the government is committed to structural reforms that will "reshape the very foundation of our economy."
According to sources, the new budget proposes setting sector-wise growth targets as follows: 4.8pc for the agriculture sector, 4.8pc for the industrial sector, and 4.3pc for the services sector.
The GDP growth rate for the outgoing fiscal year 2024-25 stands at 2.68%, significantly lower than the targeted 3.6%.
In 2023–24, Pakistan's GDP growth remained subdued, estimated between 1.5% to 2.0%. The economy continued to struggle under the weight of high inflation, IMF-imposed fiscal tightening, and a depreciating currency, all of which constrained domestic demand and investment.
In 2022–23, the economy experienced a sharp deceleration, with growth slowing to around 0.29%. This decline was largely attributed to severe political instability, dwindling foreign exchange reserves, and catastrophic floods that severely impacted agriculture and infrastructure.
In 2021–22, GDP growth reached 6.10%, fueled by robust remittances, strong manufacturing output, and increased consumer demand. However, this apparent strength masked underlying vulnerabilities, including widening fiscal deficits and mounting external debt, which started undermining macroeconomic stability.
In 2020–21, the economy rebounded with a 5.74% growth rate after the previous year’s contraction. The recovery was driven by solid performance across agriculture, industry, and services sectors. Despite this improvement, the momentum proved difficult to sustain in subsequent years.
In 2019–20, the economy contracted by -0.94%, marking Pakistan’s first economic decline in decades. The downturn was primarily due to the global impact of the COVID-19 pandemic, lockdown measures, and associated supply chain disruptions.
Salaries and Pensions
The government has approved a 10 percent increase in salaries and 7 percent hike in pensions of the government employees after tough negotiations with the International Monetary Fund (IMF).
Over the past five fiscal years, the federal budget of Pakistan has reflected a mixed trend in salary increases for government employees. These adjustments have largely been influenced by inflation and economic challenges.
The 2023–24 federal budget maintained the focus on relief, offering a 30pc salary increase for employees in grades 1 to 16 and 20pc for higher-grade officials.
In 2021–22, the government approved a 10pc ad-hoc relief allowance for all federal employees, responding to rising inflation and public pressure. The trend continued in 2022–23, with another 15pc increase, accompanied by a significant revision in basic pay scales. This was part of an effort to ease the burden on low and middle-income employees.
The 2020–21 budget again saw minimal increases due to the economic impact of COVID-19, resulting in a freeze on salaries and pensions.
In the 2019–20 budget, the government announced no salary increase for upper-grade such Grade 21 and 22 employees, while Grade 1 to 16 staff received a modest 10 percent ad-hoc increase and Grade 17-20 got 5pc hike in salaries.
Defence Budget
The federal government has set aside Rs2,550 billion in wake of the defence budget, reflecting a 18pc increase as compared to the last fiscal, owing to recent escalation with India.
Pakistan’s defence budget has shown a steady increase over the past years, reflecting the country’s focus on strengthening its security and defense capabilities.
It stood at Rs920 billion in FY2017-18 while the allocation grew by 20pc the following FY2018-19 to reach Rs 1,100 billion.
The subsequent FY2019-20 saw a moderate increase of 5pc, bringing the budget to Rs 1,153 billion.
This upward trend continued with a 12pc rise in FY2020-21 to Rs1,289 billion, followed by a 6pc increase to Rs1,370 billion in FY2021-22. The defence budget then expanded further by 14pc, reaching Rs1,563 billion in FY2022-23, and climbed another 15pc to Rs1,804 billion in FY2023-24.
Most recently, the defence allocation was increased by 18pc, bringing the total budget to Rs2,122 billion in outgoing FY2024-25.
These consistent increases underscore the government’s commitment to enhancing national security and defense infrastructure.
Finance Bill
Finance Minister Muhammad Aurangzeb on Tuesday presented the federal budget for the fiscal year 2025-26 in the National Assembly on Tuesday with a total outlay of Rs17,573 billion.
Here is full copy of the Finance Bill 2025.
Budget Speech
The full budget speech of the Finance Minister is as under:
