Pakistan’s government unveiled its annual budget on Friday, highlighting plans to increase tax revenue and defense spending amid public dissatisfaction over rising inflation tied to ongoing tensions in the Middle East. Finance Minister Muhammad Aurangzeb announced a proposed budget of 18.77 trillion rupees ($67 billion), with defense spending set to rise by 16 percent while allocations for development projects remain unchanged.
The government aims to boost tax collection by 18 percent to meet fiscal targets agreed upon with the International Monetary Fund (IMF), as part of efforts to stabilize the economy following narrowly avoided sovereign default last year. The current IMF program, valued at $7 billion over three years, includes conditions for expanding the tax base and improving revenue generation, a challenge given that much of Pakistan’s workforce operates in the informal sector.
Economic conditions have been strained by the fallout from the Middle East crisis, which Islamabad has actively worked to mediate between Iran and the United States. The conflict has driven up energy prices sharply, with petrol costs in Pakistan rising more than 40 percent since hostilities erupted in late February. These increases have contributed to a spike in inflation, which climbed to 10 percent in the three months after the conflict began, up from 5.5 percent in the prior period, according to the official annual economic survey.
GDP growth for the year ending in June is projected at 3.7 percent, falling short of the targeted 4.2 percent. Looking ahead, Finance Minister Aurangzeb forecast a growth rate of four percent in the next financial year, accompanied by inflation of 8.2 percent.
Public reaction to the budget has been mixed but predominantly critical due to the steep rise in living costs and the proposed taxation measures. Shopkeepers in Rawalpindi reported a decline in customers as many households curtailed spending amid increasing prices for basic goods such as rice, wheat, and spices. “People’s purchasing power has disappeared, and now markets are deserted,” said Khursheed Ahmed, a shopkeeper in his mid-40s.
Critics of the new budget also voiced concern over a government initiative aimed at bringing small businesses into the tax system, seeing it as ill-timed given current economic pressures. “Instead of imposing more taxes on the poor and small shopkeepers, the government should reduce its own expenditure,” argued Rashid Mahmood Khan, a 53-year-old wholesale trader.
On the day of the budget announcement, demonstrations took place outside the parliament in Islamabad, where government employees protested, demanding salary increases and higher pensions to cope with inflation. The growing unrest underscores the difficulties Pakistan faces in balancing fiscal consolidation with the public’s economic realities amid regional instability.