ISLAMABAD: Pakistan is aiming to sharply increase economic growth under its annual federal budget unveiled on Tuesday, but analysts are skeptical about the country’s ability to meet its ambitious goals.

The budget targets higher revenues and a steep fiscal deficit cut under International Monetary Fund (IMF) backed reforms. Yet, defense spending was hiked 20 percent, excluding military pensions, after last month’s conflict with India.

Finance Minister Muhammad Aurangzeb said in a post-budget press conference on Wednesday that customs duties have been cut or removed on thousands of raw materials and intermediate goods.

“Industry here has to be competitive, competitive enough to export,” he said.

But growth drivers remain unclear. The government is targeting 4.2 percent GDP growth in fiscal 2026, up from 2.7 percent this year, which was revised down from an initial 3.6 percent as agriculture and large-scale manufacturing underperformed.

“Pakistan’s GDP growth projection of 4.2 percent appears ambitious given recent performance, and overly optimistic assumptions may place tax targets out of reach,” said Callee Davis, senior economist at Oxford Economics.

Pakistan’s past growth spurts were consumption-led, triggering balance-of-payments crises and IMF bailouts. The government says it now wants higher-quality, investment-driven growth.

Aurangzeb said structural reforms are underway, pointing to East Asia-style pro-market transitions. “This is an East Asia moment for Pakistan,” he said.

“BUDGET KEEPS IMF HAPPY”

The 17.57 trillion rupee ($62.24 billion) budget comes as Pakistan remains under a $7 billion IMF program. Revenues are projected to rise over 14 percent, driven by new taxes and broadening the tax base. The fiscal deficit is targeted at 3.9 percent of GDP, down from this year’s 5.9 percent.

Key reforms include taxing agriculture, real estate, and retail, and reviving stalled privatizations. But revenue shortfalls this year have raised doubts, with both agriculture income tax and retail collections missing targets. Only 1.3 percent of the population paid income tax in 2024, government data shows.

“Pakistan’s budget keeps the IMF and investors happy, even if it comes at a near-term cost to growth,” said Hasnain Malik, head of equity strategy at Tellimer.

“The political setup, with the military firmly in charge, also lowers the risk of protests.”

While overall spending will fall 7 percent, defense will rise after the worst fighting between the nuclear-armed neighbors in decades. Including pensions, defense spending will total $12 billion, 19 percent of the federal budget or 2.5 percent of GDP, matching India’s share, per World Bank data.

The hike was enabled by a sharp drop in interest payments, as the central bank cut policy rates from 22 percent to 11 percent over the past year, easing domestic debt servicing costs. Aurangzeb said cuts in subsidies also helped create fiscal space.

($1 = 282.3000 Pakistani rupees)

KARACHI: Pakistan received $3.7 billion in workers’ remittances in May 2025, a strong 16 percent increase month-on-month and 13.7 percent year-on-year, the State Bank of Pakistan (SBP) said on Wednesday, with Saudi Arabia remaining the largest contributor, sending $913.9 million.

The inflows brought total remittances for July-May FY2024-25 to $34.9 billion, marking a 28.8 percent increase from $27.1 billion in the same period last year. The rise follows a record breaking $4.1 billion in March, the highest-ever single-month inflow, and a robust $3.2 billion in April. 

The strong performance has helped offset Pakistan’s trade deficit and support its fragile foreign exchange reserves amid continued macroeconomic pressure.

“This is the highest level of remittances recorded in recent months,” the SBP said in a statement, noting that the increase reflected stronger flows from key corridors and a growing shift toward formal remittances channels. 

Analysts attribute the surge to a combination of factors, including improved exchange rate management, government crackdowns on hawala and hundi informal systems for transferring money internationally, and seasonal flows during Ramadan and Eid.

Saudi Arabia remained the largest contributor in May, sending $913.9 million, followed by the United Arab Emirates ($754.2 million), the United Kingdom ($588.1 million), and the United States ($314.7 million).

Remittances remain a critical source of foreign exchange for Pakistan, which is currently under a $7 billion IMF program and facing over $24 billion in external debt repayments over the next fiscal year.

The central bank has raised its full-year remittance forecast to $38 billion, reflecting optimism that flows will continue to support economic stabilization.

The surging remittances, especially from Saudi Arabia, help cushion Pakistan’s chronic current‑account deficit and bolster its foreign exchange reserves, offering relief ahead of major debt repayments. With global commodity prices still volatile and external financing constrained, continued inflows from overseas workers, particularly from the Gulf, are seen as crucial to maintaining macroeconomic stability and supporting Pakistan’s growth outlook under IMF conditions.