Pakistan Federal Budget 2026-27: Key Allocations, Defence Spending, and Economic Outlook
Finance Minister Senator Muhammad Aurangzeb presented the Federal Budget 2026-27 before the National Assembly on June 12, 2026. This marks the third consecutive budget presented by the current government.
Economic Context
The Finance Minister acknowledged that the Iran–Israel conflict posed significant financial challenges during the outgoing fiscal year, particularly in the form of fuel shortages and supply chain disruptions. He stated that the government made every effort to provide maximum support and subsidies to the public, and successfully arranged fuel supplies through alternate channels to mitigate the impact.
Inflation for the current fiscal year 2026-27 is projected at 7%.
Pensions
The total pension allocation stands at Rs. 1,169 billion, of which Rs. 822 billion is earmarked for military pensions and Rs. 272 billion for civilian pensions.
Defence Budget
The defence budget has been increased from Rs. 2,550 billion in 2025-26 to Rs. 3,000 billion for 2026-27, reflecting a significant rise in national security expenditure.
Federal Development Budget & Key Sector Allocations
The Federal Development Budget (PSDP) has been set at Rs. 1,000 billion. Major sectoral allocations within the development budget are as follows:
| Sector | Allocation |
|---|---|
| National Highway Authority | Rs. 225 billion |
| Power Division | Rs. 88 billion |
| Higher Education Commission (HEC) | Rs. 46 billion |
| Pakistan Railways Development | Rs. 40.6 billion |
Debt Servicing & Grants
Interest repayment obligations for 2026-27 amount to Rs. 8,054 billion, reflecting the continued burden of public debt on the national exchequer. The volume of grants has been set at Rs. 2,680 billion.
Social Sector Allocations
The Federal Budget 2026–27 places strong emphasis on social development, particularly in health and education.
- Health Sector: Rs. 25.1 billion allocated for healthcare initiatives across the country.
- Education Sector: Approximately Rs. 26 billion allocated for schools and colleges.
- Danish Schools: Rs. 22 billion earmarked for the continued expansion and support of Danish Schools.
- NAVTTC (Technical Education): Rs. 7.9 billion allocated for technical and vocational training programs.
Governance and Administrative Reforms
Significant allocations have been made to improve governance, public safety, and digital transformation of government systems.
- Civil Services & Administration: Rs. 13 billion allocated for civil services and administrative improvements.
- Police & Law Enforcement: Included within governance spending to strengthen internal security.
- Digital Governance: Funding allocated to support digital transformation initiatives across government departments.
Development of Less-Developed Regions
Special focus has been given to less-developed and remote regions to reduce regional disparities.
A combined allocation of Rs. 144.9 billion has been set for:
- Azad Jammu & Kashmir
- Gilgit-Baltistan
- Merger Districts in Khyber Pakhtunkhwa
Tax Reforms and Policy Updates
The budget introduces several important adjustments in taxation policy aimed at supporting businesses and restructuring revenue collection.
- The super tax on income above Rs. 50 crore has been reduced from 10% to 8%, aimed at providing relief to smaller business owners.
- It has been proposed to end super tax for exporters to improve export competitiveness.
- However, super tax will remain applicable for sectors such as banks, fertilizer companies, and oil companies.
Property Tax Adjustments
Changes have also been introduced in property taxation to streamline transactions and improve compliance:
- Property sale withholding tax (for filers): 2.5%
- Property purchase withholding tax: 1.5%
