Pakistan faces rising fiscal pressure as global energy shocks and inflation reshape the outlook for the upcoming budget 2026–27.
Pakistan’s economy is heading into a critical budget season under mounting pressure from global shocks, inflation, and structural fiscal constraints, raising concerns over policy direction and economic stability.
Dr Hafiz Ahmed Pasha warned that external geopolitical tensions, including disruptions in global energy routes, have intensified domestic inflationary pressures. He said rising fuel prices have triggered a chain reaction across transport and food sectors, pushing inflation to 11.7% in May 2026, well above the central bank’s target range.
The economist noted that recent fuel price hikes of nearly 40% have deepened cost-of-living challenges, while high petroleum levies continue to add pressure on households. He urged policymakers to reconsider taxation on fuel and expand relief for vulnerable groups through strengthened social protection programs.
Looking ahead, he said the government faces a difficult balancing act between IMF commitments and public relief measures, with development spending—especially in water security now a strategic priority amid regional uncertainties.
Despite improvements in fiscal consolidation and rising tax collection, Pakistan’s reliance on indirect taxation remains high, limiting equitable growth. He also cautioned that revenue targets may remain under strain if economic conditions worsen.
Pasha maintained that targeted reforms, broader tax base expansion, and prudent fiscal management could help stabilize the economy, though risks remain elevated in the near term.
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