Pakistan will unveil its federal budget for 2025–26 on 10 June, just a week after it emerged that all major economic targets for the previous year were missed. A Planning Commission report disclosed that GDP growth for 2024–25 is expected to settle at just 2.7 per cent against a 3.6 per cent goal, while private investment, national savings and exports all fell short of expectations.
In parallel, a recent World Bank update revealed that nearly 45 per cent of Pakistanis lived below the poverty line in 2018–19. With purchasing power collapsing in recent years, the true figure today is almost certainly higher, reflecting a deepening crisis, while elites & media anchors remain trapped in their bubble. Although the recent poverty data was derived from a recalculated international poverty threshold of $4.20 per day—up from the earlier $3.65 level—but it underscores how widespread poverty remains once measured against more realistic yardsticks. Taken together, these revelations suggest that any relief from falling inflation and a buoyant stock market may please the wealthy elites but the economy remains fraught with structural weaknesses and widespread poverty.
Pakistan’s celebrated “macroeconomic miracle” – where inflation plunged from roughly 38 per cent in May 2023 to near zero by April 2025, the KSE-100 index roughly tripled, and 2031-maturing Eurobonds rallied from $0.40 to $0.80 on the dollar – belies a recovery built on fragile ground.
Officials estimate GDP growth for FY 2024-25 at a modest 2.68 per cent, well below the 3.6 per cent target. Even this projection seems contrived, given that the economy expanded by only 1.77 per cent in the first nine months of the fiscal year. Agriculture posted a meagre 0.56 per cent growth, marked by a sharp decline in major crops, while large-scale manufacturing contracted, underscoring the economy’s exposure to external shocks and its heavy dependence on remittances and foreign funding.
The 2025-26 budget, shaped by IMF strings attached to a $7 billion Extended Fund Facility and $1.4 billion Resilience Facility, is no victory lap but a high-wire act: can Islamabad uphold stringent fiscal targets while kick-starting growth, or will debt service and political inertia reassert Pakistan’s boom-and-bust curse?
Foreign creditors, cautious investors, and a restive public will watch because Islamabad’s next moves will determine whether Pakistan finally breaks its boom-and-bust spell or remains trapped by it
When Barron’s hailed Pakistan’s economy as a “macroeconomic miracle,” it cited inflation plummeting from 38 per cent to near zero and Eurobonds due in 2031 doubling from $0.40 to $0.80, while the stock market tripled in value.
Those headline figures mask softer realities: GDP expanded just 2.68 per cent in FY 2024-25, missing the government’s 3.6 per cent target, and underscoring that headline gains relied heavily on policy support and capital inflows rather than robust domestic demand.
In the third quarter of FY 2025, agriculture treaded water with a mere 1.18 per cent rise, while industrial output slipped 1.14 per cent – large-scale manufacturing among the hardest hit, dragged down by high input costs and energy shortages.
Meanwhile, key crop production plunged by 13.5 per cent year-on-year, a sharp reversal from the prior season’s gains, reminding observers that weather and policy missteps can swiftly erase gains.
The upcoming 2025-26 budget is not a cure but a crucible, crafted to satisfy over fifty IMF conditions that reach every corner of Pakistan’s fiscal life.
Fiscal pressures have mounted as tax revenues consistently undershoot targets. By the end of May, provisional data showed year-to-date receipts of Rs 10.21 trillion against a revised target of Rs 11.24 trillion—a gap of roughly Rs 1.03 trillion. These shortfalls persisted despite a 28 per cent year-on-year rise in total collections, driven largely by higher withholding taxes and slowed refunds. The result is that revenue goals are dangerously aspirational, and the government now plans to aim for Rs 14.3 trillion in FBR receipts for 2025–26—an ambitious 16 per cent increase over this year’s revised objective.
Salvos fired at salaried workers – a steep tax hike that fuels political backlash – sit uneasily alongside popular calls for electricity-tariff relief, creating tensions between IMF orthodoxy and political realities. Against this backdrop, every rupee allocated to debt service – Pakistan must repay roughly $30.35 billion in external obligations this fiscal year – is a rupee diverted from roads, factories, or farms.
External debt stood at $131.16 billion as of December 2024, and annual repayments of $30.35 billion leave scant room for discretionary spending on infrastructure or innovation.
The IMF’s Extended Fund Facility and Resilience Facility collectively unlocked $8.4 billion, but each tranche hinges on implementing measures such as semi-annual energy-tariff rebasing, phasing out Special Technology Zone incentives, and eliminating the PKR 3.21/unit debt-surcharge cap – policies that bite politically even as they shore up debt sustainability.
Though recent warming in U.S.–Pakistan relations, highlighted by President Trump’s role in brokering the May 2025 India–Pakistan ceasefire, may have raised hopes for gentler IMF terms, history and hard realities counsel caution. During the Cold War and the post-9/11 Afghan campaigns, U.S. strategic interests did yield relatively flexible IMF arrangements for Pakistan. Today, however, Pakistan’s tax-to-GDP ratio of roughly 9 per cent leaves scant fiscal room for manoeuvre, and mounting deficits further constrain any special treatment. In an increasingly multipolar world, Washington’s capacity to sway IMF policy has diminished, and the Trump administration’s deep cuts to foreign aid underscore that even America’s backing may not translate into softer IMF medicine.
Foreign direct investment in Pakistan over July–April FY 2024-25 amounted to just US $1.785 billion, slightly below the US $1.837 billion recorded a year earlier. Despite multilateral pledges, such as the IFC’s plans to scale up support and the World Bank’s commitment of up to US $20 billion spread over ten years and tied to policy conditions, these resources fall far short of the US$ $19.75 billion financing gap projected for FY 2025-26. Reliance on conditional loans from China and Gulf partners has grown, but without a stable policy environment and broader private-sector engagement, FDI remains too erratic to anchor Pakistan’s recovery.
Manufacturing, once the engine of growth, has stalled amid outdated machinery and erratic power supplies, with large-scale production down 1.5 per cent in the first three quarters of FY 2025. Agriculture’s scant 0.56 per cent growth belies volatility – a 13.5 per cent collapse in key crops – and highlights the sector’s exposure to weather and policy shocks.
On the export front, textiles still dominate, while high-growth segments like IT outsourcing, despite double-digit expansion, contribute only a little over $3 billion annually. Geopolitical flare-ups add unpredictability: April’s Pahalgam attack brought Pakistan and India to the brink, and although a May ceasefire lifted the KSE-100 by 9 per cent, the calm remains precarious.
Defence outlays, projected at PKR 2.414 trillion by the IMF (and PKR 2.5 trillion by Islamabad), crowd out other priorities in a budget already stretched thin.
State-owned enterprises bled PKR 851 billion in FY 2024, and stalled privatisation – from PIA to other loss-making giants – means the public purse remains exposed to inefficiency and graft.
The IMF’s call for a nationwide corruption and transparency audit by July 2025 confronts entrenched interests and bureaucratic inertia. Politically motivated overspending could trigger another crisis unless these reforms penetrate beyond paper and decree. Without closing loopholes that let elites evade taxes, rather than targeting salaried workers alone, revenue projections will remain wishful, and external dependence will deepen.
The story of Pakistan’s “macro-miracle” is compelling only until one reads the fine print. This budget is less a celebration than a crossroads: political courage and technocratic discipline must unite to print a new chapter. Success would mean pairing IMF-mandated austerity with strategic investments in manufacturing, agriculture, and export diversification. Failure would condemn Pakistan to another cycle of boom financed by debt, followed by painful bust and renewed reliance on external bailouts. Foreign creditors, cautious investors, and a restive public will watch because Islamabad’s next moves will determine whether Pakistan finally breaks its boom-and-bust spell or remains trapped by it.