By The South Asia Times

ISLAMABAD — Pakistan on Friday presented a federal budget worth 18.77 trillion rupees ($67.49 billion) for the fiscal year 2026–27, outlining a mix of moderate economic optimism, constrained development spending and a rise in defense allocations as the country navigates ongoing fiscal pressures.

Finance Minister Muhammad Aurangzeb presented the budget in the National Assembly, where the session was delayed and marked by opposition protests. The government set a GDP growth target of 4% for the coming fiscal year, which runs from July 2026 to June 2027, alongside an inflation target of 8.2% as it aims to consolidate macroeconomic stability.

Aurangzeb said Pakistan’s economy had expanded to $452 billion, describing it as a key milestone. He said per capita income had risen to $1,901, while foreign exchange reserves had improved significantly from around $4 billion three years ago to over $17 billion.

The finance minister said large-scale manufacturing grew by 6.1% and the services sector by 4.1% during the outgoing fiscal year, describing both as the strongest performance in four years. Overall GDP growth stood at 3.7%, compared with 3.2% in the previous year and a contraction of 0.2% in FY2023.

He also highlighted record remittances of $38 billion, reflecting strong contributions from overseas Pakistanis, and said that economic indicators showed resilience despite multiple shocks, including floods, regional tensions, and global trade uncertainties.

However, the new budget reflects continued fiscal constraints. While defense spending has been increased, development expenditure has been limited, signaling the government’s focus on balancing security needs with fiscal discipline. The defense allocation is estimated at around 3 trillion rupees ($10.8 billion), according to budget documents.

Prime Minister Shehbaz Sharif, speaking before the budget presentation, emphasized that national security was essential for economic stability. He said Pakistan must invest in infrastructure such as water reservoirs and dams while accelerating the shift toward renewable energy, including solar and wind projects.

Despite macroeconomic improvements, labor market challenges persist. Official data shows unemployment rising to 7.1%, highlighting difficulties in job creation even as the economy expands.

The government also proposed a 7% salary increase for federal employees as part of efforts to manage inflationary pressures and support public-sector workers.

The budget comes as Pakistan continues its transition from economic stabilization to growth, while balancing defense needs, social spending, and development priorities under tight fiscal conditions.