Govt proposes Rs1tr development budget

Ahead of the presentation of the federal budget for Fiscal Year 2026-27, the government on Friday proposed a Federal Public Sector Development Programme (PSDP) of Rs1 trillion as part of the broader Rs17.5 trillion budget, according to official budget documents.

Under the proposed PSDP, Rs682.48 billion has been allocated to federal ministries and divisions, while the National Highway Authority (NHA) is set to receive Rs224.51 billion.

The Water Resources Division is the largest recipient among federal entities, with a proposed allocation of Rs103.8 billion. The Power Division (NTDC/PEPCO) follows with Rs88 billion, while the Cabinet Division has been allocated more than Rs64.8 billion.

The Higher Education Commission (HEC) is proposed to receive Rs46 billion, followed by the Railways Division with Rs40.65 billion and the Federal Education and Professional Training Division with Rs36.31 billion.

A total of Rs233.33 billion has been earmarked for provinces and special areas, including Rs56.7 billion for the merged districts and Rs85.02 billion for Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (GB).

The Information Technology and Telecommunication Division is set to receive Rs19.58 billion, while Rs16.06 billion has been allocated for the National Health Services Division. The Interior Division has been allotted Rs21.82 billion, and Rs1 billion has been earmarked for new projects under CPEC 2.0.

The federal PSDP is proposed at Rs1 trillion, while development spending by state-owned enterprises is estimated at Rs2.218 trillion, bringing the overall national development programme to Rs3.669 trillion.

Planning Minister Ahsan Iqbal has said that no new development projects would be initiated during the next fiscal year, except those related to defence and internal security.

Economic targets for FY2026-27

According to official documents, the government has set a gross domestic product (GDP) growth target of 4% for FY2026-27, while inflation is projected at 8.2%.

The services sector is expected to expand by 4.2%, industry by 4%, and agriculture by 3.8%. Within agriculture, major crops are projected to grow by 3.6%, while other crops are expected to record growth of 4.2%.

The government has projected overall investment at 15% of GDP and national savings at 14.3%. Fixed investment is targeted at 13.3%, while private-sector investment is expected to reach 10.3%.

Among agricultural sub-sectors, cotton ginning is projected to grow by 2.5%, livestock by 3.9%, forestry by 3.2%, and fisheries by 1.5%.

Manufacturing growth is targeted at 5.8%, including 4.5% growth in large-scale manufacturing and 7.2% in small-scale manufacturing.

Other sectoral targets include 1.1% growth in electricity, gas and water supply, 2.2% in construction, 4.2% in wholesale and retail trade, and 3.7% in transport and communications. The information and communication sector is projected to grow by 7.7%.

Financial and insurance services are expected to expand by 4.5%, while growth has been projected at 3.5% for real estate, 3.6% for education, and 4.3% for human health and social work activities.

Federal Budget

The government is set to unveil a massive Rs17.5 trillion (approximately $61 billion) consolidated budget for the fiscal year 2026-27 on Friday (today) to meet strict International Monetary Fund austerity conditions.

The high-stakes spending plan balances fiscal tightening and IMF structural directives while introducing relief measures for the poorest citizens and modest salary bumps for government workers. The budget comes as much of the population continues to feel the effects of the Iran-US war, with no indication that the conflict is easing.

The government will propose measures to raise revenue and cut spending while shielding the nation’s poorest.

Under pressure to meet austerity conditions from the International Monetary Fund, Finance Minister Muhammad Aurangzeb will submit a delayed Rs17.5 trillion ($61-billion) spending plan for the fiscal year starting next month in the National Assembly.

Also Read: Govt to unveil Rs17.5tr budget

The budget had been formulated while considering the existing challenges being faced by the economy at the domestic and international fronts.

In addition to fiscal management, revenue mobilisation, measures for economic stabilisation and growth, reduction in non-development expenditures, job creation, and people-friendly policies for the socioeconomic prosperity of the country would feature in the budget.

The burden of higher fuel and power costs and taxes will fall largely on formally registered businesses and salaried workers, as politically powerful sectors such as agriculture, retail and real estate remain difficult to tax, experts say.

Policymakers must contend not only with the conditions from the latest IMF bailout package but also an outsized impact from the US-Israeli war on Iran – a conflict Islamabad has sought to mediate.

The surge in oil prices sparked by the war has driven Pakistan’s inflation back to double digits just as the economy had appeared to be finding its footing.

Business confidence was the lowest in May since S&P began its manufacturing survey last year, while input costs hit a 21-month high and employment fell for a second month.

Read More: Economy shows resilience amid Iran war fallout

The central bank raised interest rates by a percentage point in April, its first increase in almost three years. The government is pressing the Federal Board of Revenue to raise next year’s tax collections to 37% above the target for this year – which the agency is set to miss.

The extensive unofficial economy keeps much of Pakistan’s cash beyond the FBR’s reach: just 1.3% of Pakistanis filed returns showing taxable income last year, and just 7.7% of adults hold a debit or credit card.

The number of tax filers has risen, but revenue has not kept pace. Corporate tax rates are already high by global standards, while raising income tax would crush purchasing power still recovering from two years of inflation.

The budget is expected to protect the poorest citizens by providing them with cash transfers. The government has not explained the one-week delay in submitting the budget.Read More