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The hybrid government is set to present the next fiscal year’s budget at a moment when Pakistan has accumulated notable additional diplomatic capital yet finds itself constrained by deep domestic polarisation and a level of public trust that has not kept pace with its external gains.
While recent macroeconomic indicators suggest tentative stabilisation, the deeper foundations of the economy remain burdened by severe fiscal constraints, external vulnerabilities and persistent structural inefficiencies.
Following the International Monetary Fund’s (IMF) completion of the third review under the $7 billion Extended Fund Facility (EFF), Islamabad’s fiscal path has become tightly bound to strict reform targets and surplus requirements. Policymakers are now attempting to balance economic stabilisation with rising political and social pressures, as the cost of adjustment falls on ordinary citizens. In the FY27 budget, debt servicing remains the ultimate fiscal constraint, with total interest payments projected at approximately Rs7.8 trillion.
While this exceeds 45 per cent of total estimated federal revenues, it consumes nearly 80pc of net federal revenues after provincial transfers. Despite strictly maintaining a high primary surplus of 2pc of GDP under non-negotiable IMF conditions — largely supported by provinces surrendering cash surpluses — the country’s structural debt burden means the overall fiscal deficit is still expected to settle around 3.5pc of GDP.
