Welfare -oriented Federal Budget

Keeping the IMF at arm’s length

As and when the largest coalition government at the national level headed by Prime Minister Muhammad Shehbaz Sharif starts preparations for presenting another budget to the nation, the International Monetary Fund (IMF) immediately gets involved in this budget making process from start till end Nothing at all is included in the federal budget without the approval of the IMF. As such it was pertinent to dilate on Pakistan-IMF relations first and then discuss the Federal Budget 2026-27, which was the third presentation of the incumbent federal government 

The IMF was founded in December 1945 apparently after the end of the Second World War and has its headquarters in Washington DC. USA. It has 191 member countries. While 191 nations participate in the institution and its global economic tracking, any member experiencing balance of payments issues is eligible to become a beneficiary of its loans, financial assistance and technical support.

Pakistan had officially joined the IMF on 11 July 1950. Since its joining the IMF, Pakistan has sought IMF financial assistance a total of 25 times. As such, Pakistan and the IMF share a long standing relationship of financial support and economic reforms which have since evolved into a 37-month Extended Fund Facility (EFF) of approximately US $ 7 billion. The programme, which is due to end next year, strictly focuses on maintaining fiscal discipline, broadening the tax-base, and restructuring state--owned enterprises. The relationship has been marked by cyclical dependencies with Pakistan seeking financial bailout to stabilize foreign exchange reserves and prevent sovereign default. The IMF office in Islamabad actively monitors ongoing progress.

June is the last month of an outgoing financial year. As such, the federal and provincial budgets have to be presented, discussed, approved by the respective national and provincial legislatures before midnight of June 30 as the very next day, July 1, a new financial year gets underway.

The Federal Budget, with an outlay of Rs 18.77 trillion for financial year 2026-27, was presented in the National Assembly on June 12 by Federal Finance Minister Senator Muhammad Auangzeb and is in the final stages of its approval by the national legislature.

Broadly, defence spending has been increased in view of India's continued hostilities and aggressive designs, the federal Public Sector Development Programme has been squeezed to Rs 1000 billion to meet the IMF goals, and the growth rate target has been fixed at just 4 percent.

During the financial year 2026-27, the federal government will be transferring Rs 8.8 trillion to the four provinces under the National Finance Commission. Contrary to all expectations, the 11th NFC, set up in August 2025 failed to finalize its recommendations, and the 7th NFC Award has been extended by another year.

The salaries and pensions of the serving and retired government servant have been increased by only 7 percent without taking into consideration of upward trends in the cost of living, minimum wages have been raised by 10 percent, income tax rates for the salaried class have been  reduced across all four tax slabs, surcharge on the salaried class has been abolished, imported vehicles above 3000cc cars and luxury electric vehicles have been taxed, and all sorts of subsidies have been cut by 5.7 percent.

The federal government's main tax collecting and revenue generation agency, the Federal Board of Revenue (FBR), has been tasked to collect Rs 15.26 trillion. Rs 150 billion will be collected through new or increased taxes. Another big chunk of Rs 5.34 trillion will be raised as non-tax revenue. mainly from petroleum and climate levies among others. The bulk of non-tax revenue of Rs 1.73 trillion will be generated. through petroleum levies.

The federal government through the new budget intends to borrow Rs $ 23.38 billion from bilateral and multilateral sources, foreign commercial banks, bilateral deposit and Naya Pakistan besides the IMF in varying figures.

During the financial year 2026-27, the federal government will be transferring Rs 8.8 trillion to the four provinces under the National Finance Commission. Contrary to all expectations, the 11th NFC, set up in August 2025 failed to finalize its recommendations, and the 7th NFC Award has been extended by another year. President Mamnoon Hussain had ordered to amend the Distribution of Revenues and Grants-in-Aid Order 2010 and it had come into force from 1 July 2015 and was accordingly being extended from year to year since then in the absence of any new NFC Award for over ten years.

The federal government has announced a number of welfare and relief measures and initiatives in its budget for next financial year. These measures and initiatives were both realistic and unrealistic. The meagre seven percent increase in the salaries and pensions of the serving and retired public servants was quite unrealistic.

The huge increase in the salaries of those treading the corridors of powers in the federal and provincial capitals some months ago was still fresh in the memories of many people. While the serving government servants enjoy a number of privileges and perks such as residential and conveyance facilities, the majority of retired public servants lack these facilities

As the federal budget is still in the final stages of approval, the PM is requested to at least upwardly revise the pension increase for retired public servants by around 20 percent if not more than. It is just unfair to treat the serving and retired government at the same level.