ADB warns Pakistan’s ambitious FY2027 revenue target could squeeze fiscal space

The Asian Development Bank warns that Pakistan's ambitious FY2027 revenue goal, alongside higher defence and interest costs, could further narrow room for growth spending. According to the bank's July 2026 Asian Development Outlook, the budget envisages a consolidated deficit of 3.6% of GDP and a primary surplus of 2.0 per cent of GDP, matching the limits under the Extended Fund Facility agreed with the IMF. Tax relief measures, including a lower super tax and cheaper industrial inputs, aim to support activity, but the ADB says their revenue cost needs offsetting through tighter compliance.

The ADB called the FBR goal of 17.6% collection growth ambitious, citing FY2025 and FY2026 shortfalls that forced in-year spending adjustments. Federal Board of Revenue tax collections are expected to reach 10.6% of GDP in FY2027, up from 10.2% in FY2026. Defence outlays are projected to rise 16%, while interest bills face upward pressure from a larger debt stock and higher policy rates after the Middle East conflict.

For FY2026, the consolidated deficit narrowed to 2.6% of GDP from 5.4% a year earlier, with the primary surplus reaching 2.9%, mostly because interest costs fell. Gross reserves stood at $18.5bn at end-June 2026, compared with $14.5bn a year earlier, and S&P and Moody's lifted Pakistan's sovereign ratings in July and August. The bank said medium-term prospects hinge on IMF-linked reforms, including energy-sector changes and the privatisation of state-owned firms.