Federal Budget 2025–26 Finalised: Outlay Set at Rs17.5 Trillion, Focus on Austerity and Tax Reforms

ISLAMABAD, June 4, 2025 – The federal government has finalised the budget for the fiscal year 2025–26, with a total outlay estimated at Rs17.5 trillion — Rs1.3 trillion less than last year’s budget — reflecting a shift toward fiscal consolidation and austerity.

According to official sources, the budget encompasses key allocations for defence, development, debt servicing, subsidies, and social support programmes. The Federal Board of Revenue (FBR) will be given an ambitious tax collection target of Rs14.1 trillion, as the government plans significant reforms in the tax structure, in line with International Monetary Fund (IMF) recommendations.

Key Allocations

Debt servicing remains the largest expenditure, with Rs9 trillion allocated — Rs7.7 trillion for domestic and Rs1.3 trillion for external repayments. Subsidies are projected to cost Rs1.4 trillion, while grants are estimated at Rs1.62 trillion. The Benazir Income Support Programme (BISP) will receive Rs700 billion to support vulnerable segments of society.

A provincial budget surplus of Rs1.2 trillion is anticipated to support the federal fiscal framework.

Austerity Measures

The government has committed to stringent austerity to curb unnecessary spending. These include:

• A ban on new vehicle purchases for federal ministries and departments

• Restrictions on electricity and gas consumption

• A freeze on supplementary grants except for emergencies (e.g., natural disasters)

• Strict prohibition of non-approved and unannounced projects

Tax and Economic Reforms

Major tax reforms are expected in the upcoming budget. The sales tax on small vehicles may be raised to 18%, and increased taxes on dividends are also under consideration to boost revenue.

The government is targeting an economic growth rate of 4.2% for the next fiscal year. Sector-wise growth projections include:

• Agriculture: 4.5%

• Industry: 4.3%

• Services: 4%

Development and International Assistance

Development spending for provinces has been proposed at Rs2.795 trillion:

• Punjab: Rs1.188 trillion

• Sindh: Rs887 billion

• Khyber Pakhtunkhwa: Rs440 billion

• Balochistan: Rs280 billion

Development projects supported by international donors are expected to receive Rs802 billion.

The Cabinet Division will receive Rs50.33 billion for its development initiatives, while Rs50 billion have been set aside for parliamentarians’ schemes. Climate-related projects are likely to get Rs2.78 billion.

Read more: Fuel Prices May Rise for Cash Payments in Budget 2025

External Sector Targets

The government is also setting ambitious targets for the external sector:

• Remittances: $39.43 billion (up from $37.45 billion)

• Exports: $35.28 billion (vs $32.85 billion this year)

• Imports: $65.21 billion (up from $58.3 billion)

• Export of services: Over $14 billion (compared to $11.48 billion)

• Current account deficit: Projected at over $2.11 billion, reversing this year’s projected surplus of $1.52 billion

The federal budget for FY2025–26 is expected to be formally presented in Parliament next week.