ISLAMABAD: Finance Minister Muhammad Aurangzeb, while presenting the federal budget for fiscal year 2026–27 in the National Assembly on Friday, announced total federal expenditure of Rs18,771 billion and set an economic growth target of 4%, describing the budget as anchored in “stabilisation, reform and growth”.
Aurangzeb said Pakistan’s economy grew by 3.7% in FY2025–26 despite floods and regional tensions, reaching a size of $452 billion. He said per capita income had increased to $1,901, while large-scale manufacturing posted its strongest growth in four years.
He said current expenditure stood at Rs17.4 trillion, including Rs8,054 billion for mark-up payments and Rs2,680 billion in grants. He added that foreign exchange reserves had risen from below $4 billion three years ago to more than $17 billion, sufficient to cover nearly three months of imports.
For FY2026–27, he said GDP growth is projected at 4%, inflation at 8.2%, the budget deficit at 3.6% of GDP, and the primary surplus at 2% of GDP.
The minister also noted that the policy rate had fallen from 22% to 11.5%, while the debt-to-GDP ratio stood at 68.5%, with an improved debt maturity profile.
He further said Federal Board of Revenue (FBR) tax revenues are targeted at Rs15,264 billion, while non-tax revenues are estimated at Rs5,336 billion.
He added that FBR collections had risen from Rs7.2 trillion to Rs13 trillion over the past three years, reflecting strengthened enforcement and tax base expansion.
External sector and capital markets
Aurangzeb said Pakistan had returned to international capital markets after four years, raising $750 million through Eurobonds.
He added that the country had also entered the Chinese capital market for the first time through a Panda Bond, which received strong investor demand.
He further said 11 IPOs were launched during the year, while more than 250 companies began operations in Special Technology Zones.
Privatisation and state asset reforms
The finance minister said the government remained committed to accelerating privatisation, arguing that the private sector would drive future growth.
He recalled the privatisation of First Women Bank and the sale of Pakistan International Airlines (PIA) through a “transparent and live-televised auction” on December 23, 2025, which generated Rs185 billion.
“Private sector is going to lead this country,” Aurangzeb told the House, adding that DISCOs, GENCOs and airports would be privatised in the next phase.
Defence, infrastructure and connectivity
Aurangzeb said Rs3 trillion had been allocated for national defence.
He added that Rs365 billion had been earmarked for highways, railways and ports, including the upcoming launch of the Karachi–Rohri section of the ML-1 railway line.
Additional allocations include Rs157.5 billion for highways, Rs100 billion for the N-25 dual carriageway conversion, and Rs30 billion for the M-6 Sukkur–Hyderabad Motorway.
Energy, circular debt and gas sector
The finance minister said energy remained “a lifeline for the economy”, adding that net-zero accumulation of circular debt had been achieved.
He added that Rs1,091 billion had been allocated for electricity subsidies and Rs116.2 billion for sustainable energy. A direct subsidy mechanism will be introduced in January 2027 to improve targeting and transparency.
Aurangzeb further stated that LNG agreements with Qatar and Italy had been renegotiated, reducing 35 cargoes and saving $1.2 billion.
He said uninterrupted gas supply had been ensured to fertiliser plants, stating: “We did not let fertiliser production halt even for a single moment.”
He added that 100 MMCFD of additional gas had been added since March 2024, while discoveries from 17 fields yielded 108 MMCFD of gas and 16,000 barrels of oil. Offshore exploration has resumed after two decades, with 24 blocks awarded and around $1 billion expected in investment.
Tax reforms and relief measures
Aurangzeb announced tax relief for salaried individuals, including a reduction in key middle-income slabs from 23% to 20%.
He said no income tax would be imposed on annual earnings up to Rs600,000, while super tax on income above Rs500 million would be reduced from 10% to 8%.
Property withholding tax for filers was reduced from 5.5% to 2.75%, while capital value tax on foreign assets was abolished.
Export tax was reduced from 2% to 1.25%, and the Export Development Surcharge was abolished.
He added that the government is also considering removing super tax on exporters.
Small traders and FBR modernisation
The finance minister said a fixed tax regime under Section 99B of the Income Tax Ordinance would allow retailers to pay 1% tax on annual sales, with simplified filing and a minimum Rs25,000 payment requirement.
He said compliant traders would be issued a “green slate”, under which tax officials would not enter business premises.
Aurangzeb said FBR reforms would include a National Faceless Centre, AI-based systems, and integration of third-party data from property, vehicles and banks. Production monitoring systems have also been installed in cement and sugar sectors.
Industrial development and SEZ expansion
The finance minister said 6,860 acres of Pakistan Steel Mills land will be converted into a Special Economic Zone to attract investment and create jobs.
He added that industrial design and automation centres are being established in Karachi, Lahore and Sialkot, while Rs88 billion has been allocated for the Export Refinance Scheme.
IT, digital economy and governance
Aurangzeb said IT exports increased by 20% to $4.5 billion, while 5G services will be launched in five cities.
He further said 92% of remittances are now received through bank accounts, while digital merchant integration rose from 500,000 to 1.67 million.
He added that 39,000 companies are registered with SECP, reflecting improved business activity.
Social protection and human development
Aurangzeb further said Rs71 billion had been allocated for the Prime Minister’s Apna Ghar scheme and Rs54 billion for low-cost housing programmes.
He said the Benazir Kafalat Programme will cover 12 million families, while Benazir Taleemi Wazaif will benefit 9.2 million children. Higher education scholarships worth Rs46 billion and Rs22 billion for Daanish Schools were also announced.
He said 68% of Pakistan’s population is under 30, calling youth development a key priority. He added that 515,000 young people had been trained under NAVTTC, with a 53% employment success rate.
Climate challenges and external vulnerabilities
The finance minister said flood losses amounted to Rs822 billion, highlighting Pakistan’s vulnerability to climate change and water stress.
Aurangzeb said Pakistan had strengthened its global economic standing through capital market access and improved investor confidence. “Pakistan’s image has improved significantly and its voice is being heard internationally,” he added.
He also referred to Pakistan’s broader regional diplomatic role during recent tensions, stating that Pakistan-China relations remained a “key pillar of economic stability”.
Concluding his speech, the finance minister expressed gratitude to the prime minister, coalition partners, opposition, provincial governments and military leadership for their support in achieving economic stabilisation and reform progress.
