Pakistan expected to increase Federal Budget 2025-26 size by 3pc

KARACHI: Pakistan is likely to announce Federal Budget for 2025-26 where the size is likely to see an increase of 3 per cent owing to expected growth in the economy and inflation rate to accelerate, according to the sources privy to budget preparations.

The government announced the Federal Budget after the Eid festival where the size of budget for the new fiscal year starting July 1, 2025 would be around Rs 19,400 billion up from expected expenditure of Rs 18,877 billion in the current fiscal year.

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The government expects the economy to grow by 4.2 per cent in the new fiscal year from current year estimates of 2.7 per cent. Moreover, the inflation rate will pick up to 7.5 per cent from current year estimates of 5 per cent to 7 per cent, sources said.

The government is likely to set a tax revenue collection target of Rs 14,200 billion, up by 14 per cent from the second time revised target of Rs 12,330 billion.

At the time of announcement of the budget the target was set to Rs 12,970 billion but after meetings with the IMF the target was scaled down owing to lower economic activities and contraction witnessed in the large manufacturing sector.

However, with the benchmark interest cut by around 1100bps to 11 per cent since June 2024 owing to easing of inflation it is expected that interest payments will reduce pressure on overall expenditure by almost Rs 1,075 billion.

Interest payments during next fiscal year would be around Rs 8,700 billion down from Rs 9,775 billion set for the current fiscal target set at the time of announcement of the budget, sources said.

After the recent show down with India, there was a general expectation that the defence spending will be increased.

Defence spending to go up to Rs 2600 billion from Rs 2122 billion estimates for the current fiscal year.

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The PSDP allocation is estimated to be around Rs 900 billion for the FY2025-26 compared to Rs 1,400 billion in the current fiscal year.

Although, there is some expectation of reduction of the tax on the salaried class, but the government has not been able to convince the IMF from where the revenue gap would be filled, sources added.