Size of Pakistan's budget likely to be lowered by PKR 900 billion

The proposed size of Pakistan's federal budget for fiscal year 2025-26 (FY26) — set to be presented on June 10 in the National Assembly — is likely to be reduced by around 5% or PKR 900 billion to PKR 17,800 billion, sources in the Ministry of Finance told Nukta.

This is because the State Bank of Pakistan will pay dividends under the agreement with the International Monetary Fund (IMF), helping the government reduce the budget size amid a cut in debt payments.

The sources said that the government's proposed debt and interest payments target for FY26 would be PKR 8,685 billion compared with PKR 9,775 billion in the current fiscal year. This is mainly due to the interest rate being lowered from a historic 22% to 11%.

The proposed size of debt and interest payments on domestic borrowing and external borrowing would be PKR 7,503 billion and PKR 1,182 billion, respectively.

Austerity drive

Besides this, the government will also launch an austerity drive at both the federal and provincial levels, according to the sources.

Under the drive, there would be a ban on the purchase of new vehicles, gas and electricity usage at ministries would be limited, there would be no supplementary grants and subsidies would be reduced.

Supplementary grants would only be allowed in case of calamity and natural disasters.

Moreover, the IMF emphasized that no new funds should be allocated or disbursed to unannounced projects. Disbursement should be permitted only for ongoing projects and for projects of vital importance, according to the international lender.

Meanwhile, proposed grants and funds have been lowered to PKR 1,619 billion in the next fiscal year compared to projection of PKR 1,777 billion for the current fiscal year.

The government estimates fiscal deficit to be around PKR 6,632 billion, surplus from provinces has been projected at PKR 1,222 billion while Benazir Income Support Program allocation has been proposed at PKR 716 billion.