The budget has been passed. The applause has faded. Once again, Pakistan resumes its uneasy journey through economic difficulty this time, with a roadmap that feels more serious than in previous years.
The federal budget for FY2025–26, with an outlay of Rs17.57 trillion, is not a budget of promises but of priorities. It marks a rare moment of fiscal restraint in a system long accustomed to populist overspending. What it offers is not a breakthrough, but a chance: an acknowledgement of limits and an opportunity to reform within them. That chance, however, will be squandered unless bold action follows sober words.
Several corrective steps have been introduced: import tariffs reinstated, tax reliefs rationalised and digital commerce brought into the tax net. The increase in the tax-free income threshold from Rs600,000 to Rs1.2 million offers some relief to salaried workers grappling with persistent inflation. But these are only opening moves. The real challenge lies in implementation.
Pakistan’s fragile administrative machinery, political volatility and coalition-driven governance complicate execution. Budgetary discipline is easy to declare, much harder to deliver. After years of stagflation and recurring crises, the public’s tolerance for sacrifice without results is thin.
Still, one encouraging development stands out: political restraint. Bilawal Bhutto Zardari chose policy over populism. His support for progressive taxation and institutional reform, rather than political obstruction, signals a maturing approach to governance.
This shift matters deeply. Fiscal reform cannot succeed without political ownership. Bilawal’s constructive stance may represent a generational pivot, from noise to nuance. Pakistan needs such leadership because the margin for error is gone.
The country remains dependent on external life support. The recent $3.7 billion loan rollover from China offers breathing space but not stability. The IMF is not here to fund growth but to stop the bleeding. Only domestic policy can pave the way to recovery.
The distinction between good and bad debt is simple: good debt builds capacity, bad debt delays collapse. This year, Pakistan will spend Rs5.7 trillion on interest payments, five times its federal development budget. That is not a sustainable trajectory.
Consider Egypt. Under IMF pressure, it devalued its currency and slashed subsidies. These were painful decisions that ultimately unlocked long-term investment. Pakistan has postponed such choices for far too long.
Worse, the debt burden may still deepen. The IMF has warned that global debt levels are worse than they appear due to hidden liabilities and off-the-books obligations. For Pakistan, with its narrow tax base and import-heavy economy, the danger is acute.
The budget projects Rs14.13 trillion in federal revenue, of which Rs8.2 trillion will go to the provinces under the NFC Award. Defence, debt servicing and subsidies consume most of the remainder. That leaves little room for discretionary spending or development.
Yet within these constraints, some reforms deserve recognition. The taxation of digital commerce is overdue. Online platforms, payment gateways and courier services are now under the tax net. A 5% levy on foreign digital services aligns Pakistan with global trends from France to India. But effectiveness will hinge on enforcement. Does the FBR possess the capacity and commitment to regulate this growing sector? Or will poor implementation, once again, undermine promising policy?
Other countries offer lessons. In Indonesia, fiscal transfers to local governments are increasingly tied to performance metrics. Pakistan should adopt a similar model. To its credit, the budget also introduces several structural nudges: tax credits for low-income housing, tighter restrictions on cash transactions and greater scrutiny of property income.
These are steps in the right direction, but modest ones. What Pakistan truly needs is not incremental tweaks but deep structural reform. That includes aligning energy prices with actual costs, restructuring loss-making state-owned enterprises, overhauling the FBR and boosting exports through real trade liberalisation. Most critically, Pakistan must ensure judicial predictability and contract enforcement to attract sustained investment.
Greece offers a relevant parallel. Faced with a crippling debt crisis, it implemented painful reforms, including pension restructuring and labour market liberalisation under intense domestic resistance and international scrutiny. Today, it is reaping the benefits. Pakistan’s problems are no smaller, and the urgency of reform is just as great.
This year’s budget does something rare: it admits reality. It sets limits, avoids theatrics, and recognises the scale of the crisis. That is a start.
But now comes the hard part. To secure its IMF programme, Pakistan must deliver on promised reforms, particularly in the energy sector. Tax evasion must be curbed through administrative overhaul. Over-reliance on short-term borrowing must end. Coordination between the centre and provinces must improve. Most importantly, political stability must replace constant churn.
This budget will not transform Pakistan, but it acknowledges that transformation begins with honesty. In Bilawal Bhutto Zardari’s measured engagement, one glimpses a new kind of political maturity. If that pragmatism takes root across the political spectrum, Pakistan may yet replace its cycles of crisis with a path of gradual reform.
For now, the fiscal path remains narrow, and the terrain uncertain. But in a country that has too often chosen illusion over discipline, even this modest realism is a form of progress.
The writer is a senior lecturer in finance, leading International and Transnational Education at Birmingham City University’s College of Accountancy, Finance and Economics. He tweets/posts @HafizUsmanRana
Disclaimer: The viewpoints expressed in this piece are the writer’s own and don’t necessarily reflect Geo.tv’s editorial policy.
Originally published in The News
