Annual Budget Statement

FEDERAL BUDGET 2026-27

ANNUAL BUDGET STATEMENT GOVERNMENT OF PAKISTAN FINANCE DIVISION ISLAMABAD

PREFACE

Annual Budget Statement for FY2026-27 is presented to the National Assembly in accordance with Article 80(1) of the Constitution of the Islamic Republic of Pakistan, which requires the Federal Government to lay before the House a statement of estimated receipts and expenditures for each financial year. In accordance with Article 80(2), the statement separately reflects charged and voted expenditures from the Federal Consolidated Fund and distinguishes expenditure on revenue account from other expenditures. Under Article 73(1), the Annual Budget Statement is also transmitted to the Senate.

Pursuant to the statutory framework governing public financial management, the Annual Budget Statement for FY2026-27 includes the Statement of Purpose, Statement of Contingent Liabilities, and Statement of Fiscal Risks under Section 4 of the Public Finance Management Act, 2019 (as amended to date), as well as the Statement of Estimated Tax Expenditures under Section 8 thereof. These statements strengthen fiscal transparency, enhance accountability, and facilitate informed oversight of public finances.

In accordance with Sections 5 and 10 of the Fiscal Responsibility and Debt Limitation Act, 2005 (as amended to date), the Medium-Term Budgetary Statement and Statements of Fiscal Responsibility are also presented as part of the Annual Budget Statement, reflecting the Government’s commitment to prudent fiscal management, debt sustainability, and a credible medium-term macro-fiscal framework.

“Explanatory Memorandum on Federal Receipts” and “Demands for Grants and Appropriations” serve as supporting documents of Annual Budget Statement for FY2026-27 and provide detailed information on the Federal Government’s fiscal proposals.

IMDAD ULLAH BOSAL

Secretary to the Government of Pakistan

Finance Division

Islamabad, the 12^th June, 2026

SUMMARY OF RECEIPTS

Federal receipts are categorized as Revenue Receipts, Capital Receipts, Public Account Receipts and External Receipts. These receipts, except Public Account Receipts, become part of the the Federal Consolidated Fund.

(Rs. in million)

REVENUE RECEIPTS

Revenue Receipts constitute major component of total Federal resources. Revenue Receipts are categorized as Tax Revenue Receipts and Non-Tax Revenue Receipts, and are derived from the following sources:-

Tax Revenue Receipts

Tax Revenue is administered by the Federal Board of Revenue (FBR), which comprises of Customs Duty and Inland Revenue i.e Direct Taxes, Sales Tax and Federal Excise Duty. FBR taxes may also be categorized as Direct Taxes and Indirect Taxes. Direct Taxes comprise of Income Tax, Capital Value Tax, WWF (Ordinary Collection) and Contribution under Companies Profit (WPPF). Indirect Taxes include Sales Tax, Federal Excise Duty and Customs Duty. A snapshot of Budget Estimates is as under:-

Non-Tax Revenue Receipts

As per Section 2(a) of the Public Finance Management Act, 2019 (amended), Non-Tax Revenue means revenues received by the Government in terms of Article 78(1) of the Constitution and the recurring income of the Government from investments and provision of services but does not include those mentioned in Article 160(3) of the Constitution. Non-Tax Revenue of the Federal Government is administered by various Ministries / Divisions / Departments. Budget Estimates are as under:-

(Rs in million)

Contd…..

(Rs in million)

CAPITAL RECEIPTS

Capital receipts comprise of Recoveries of Loans and Advances from Provinces and other entities and Domestic Debt which includes Permanent Debt and Floating Debt. Budget Estimates are as under:-

(Rs in million)

EXTERNAL RECEIPTS

External Resources comprise of loans and grants received from multilateral, bilateral and other sources. Budget Estimates are as under:-

PUBLIC ACCOUNT RECEIPTS Article 78(2) provides that all other monies received by or on behalf of the Federal Government shall be credited into the Public Account of the Federation. Therefore, all the monies received by or on behalf of the Federal Government in terms of Article 78(2) are Public Account receipts which are not revenues in terms of Article 78(1) of the Constitution. However, such Public Account receipts cannot be operated without establishment of Special Purpose Funds, deposits, reserves etc under the authority of an act of the Parliament or with the approval of the Federal Government.There are two sources of Public Account Receipts as under:-

National Savings Schemes

National Savings Schemes include Savings bank accounts, Defence Savings Certificates, Special Savings Certificates, Pensionery Benefit Accounts, Behbood Savings Certificates etc.

Deposits and Reserves (Receipts) Deposits and Reserves represent all monies forming part of the Public Account of the Federation as per Article 78(2) of the Constitution of Islamic Republic of Pakistan. Budget estimates of receipts in the following table are however subject to fulfillment of following stipulations:- (i) The funds appropriated by the National Assembly out of Federal Consolidated Funds in terms of Articles 80 to 84 of the Constitution for a particular financial year (being lapsable) shall be utilized as per Cash Management and TSA Rules 2024 and shall not be deposited under these deposits and reserves heads of account (being non-lapsable) under the Public Account.

(ii) The maintenance and operation of all these funds, deposits, reserves etc shall be subject to their due establishment either under the authority of an act of Parliament or with the approval of the Federal Government, as the case may be.

(iii) Revenues in terms of Article 78(1) of the Constitution shall not be deposited in these deposits and reserves heads of account under the Public Account. The revenues shall only be deposited in the respective heads of account of tax revenue and non tax revenue.

(iv) Receipt of funds into these deposits and reserves heads of account shall only be allowed by the Accounting Offices subject to compliance of the stipulations at (i) to (iii) above and to the extent of reconciled available balance under the respective head of account.

SUMMARY OF EXPENDITURE

(Current & Development)

In this table, Budget Estimates of current expenditure (on revenue and capital account) and Budget Estimates of Development expenditure (on revenue and capital accounts) have been mentioned as per Article 80(2) of the Constitution of Pakistan.

( Rs in million)

Current Expenditure on Revenue Account

Current Expenditure on Revenue Account

(Rs in million)

Current Expenditure on Revenue Account

( Rs in million)

Revised Estimates 2025-26 are as of 15th May, 2026 based on SAP System

Current Expenditure on Capital Account

(Rs in million)

Development Expenditure on Revenue Account

( Rs in million)

Contd…..

DEVELOPMENT EXPENDITURE ON REVENUE ACCOUNT

Revised Estimates of Development Expenditure 2025-26 are as of 15th May, 2026 based on SAP System

DEVELOPMENT EXPENDITURE ON CAPITAL ACCOUNT

CAPITAL EXPENDITURE

The expenditure incurred on repayment of domestic debt is termed as Capital Expenditure.

(Rs in million)

PUBLIC ACCOUNT EXPENDITURE

National Savings Schemes

The expenditure incurred on repayment of National Savings Schemes is termed as Public Account Expenditure.

Deposits and Reserves

Deposits and Reserves represent all monies forming part of the Public Account of the Federation as per Article 78(2) of the Constitution of Islamic Republic of Pakistan. Budget estimates of Expenditure (withdrawal of funds) from the Deposits and Reserves as depicted in the following table are however subject to fulfillment of following stipulations:-

(i) The maintenance and operation of all these funds, deposits, reserves etc shall be subject to their due establishment either under the authority of an act of Parliament or with the approval of the Federal Government, as the case may be.

(ii) Withdrawal of funds from these deposits and reserves heads of account shall only be allowed by the Accounting Offices subject to compliance of the stipulations at (i) above and to the extent of reconciled available balance under the respective head of account.

(iii) There shall be no authority of direct access to Central Account No.1 (Non Food) in SBP.

(iv) Withdrawal of funds from these Deposits and Reserves heads of account shall be in accordance with the provisions of Public Finance Management Act, 2019, Cash Management and Treasury Single Account Rules 2024 and the Special Assignment Account Procedure for the Public Account of the Federation 2021. Personal Ledger Accounts shall not be used for withdrawal of funds.

(Rs in million)

Contd.....….

( Rs in million)

STATEMENT OF ESTIMATED CHARGED AND VOTED EXPENDITURE

In terms of Article 80(2) of the Constitution of Pakistan, this statement distinguishes charged and voted expenditure.

Statement of Purpose

This Statement is submitted in accordance with Section 4 of the Public Finance Management Act, 2019 (as amended to date). The demands for grants for FY2026-27 reflect the Federal Government’s commitment to fiscal discipline, macroeconomic stability, and efficient allocation of public resources in line with its medium-term reform and development priorities.

In framing the budget, priority has been accorded to key sectors including health, education, social protection, climate resilience, gender equity and human capital development. The Government remains committed to improving the quality and targeting of public expenditure while ensuring adequate fiscal space for essential social and development needs.

At the same time, the budget continues to support economic recovery and inclusive growth through sustained support for productive sectors, including agriculture, industry, and small and medium enterprises, alongside measures to enhance competitiveness, employment generation, and private sector participation.

IMDAD ULLAH BOSAL

Secretary to the Government of Pakistan

Finance Division Islamabad, the 12^th June, 2026

Statement of Demand-Wise Expenditure for Budget Estimates 2026-27 (Schedule I)

(Rs. in million)

Statement of Demand-Wise Expenditure for Budget Estimates 2026-27 (Schedule I)

(Rs. in million)

Statement of Demand-Wise Expenditure for Budget Estimates 2026-27 (Schedule I)

Statement of Demand-Wise Expenditure for Budget Estimates 2026-27 (Schedule I)

(Rs . in million)

Statement of Demand-Wise Expenditure for Budget Estimates 2026-27 (Schedule I)

Statement of Object Classification Wise Expenditure (Schedule III)

Statement of Contingent Liabilities of the Federal Government

1. Contingent liabilities of Pakistan are primarily comprise of guarantees issued on behalf of Public Sector Enterprises (PSEs). The sovereign guarantees are normally extended to enhance the financial viability of projects and activities undertaken by government entities which generate significant social and economic benefits. Such guarantees enable public sector entities to access finances at lower costs or on more favourable terms and in certain cases, fulfil requirements where a sovereign guarantee is a precondition for concessional finances from bilateral and multilateral agencies to sub-sovereign borrowers.

2. The volume of new government guarantees issued during a financial year is limited under the Fiscal Responsibility and Debt Limitation Act, 2005 (as amended to date) which stipulates that the Government shall not issue guarantees aggregating to an amount exceeding two percent of the GDP in any financial year, including those relating to rupee lending, rate of return, outright purchase agreements, and other claims and commitments, provided that the renewal of existing guarantees shall be treated as issuance of a new guarantee.

3. During July-March FY2026, the Government issued fresh rollover guarantees aggregating to PKR 769 billion, equivalent to 0.61 percent of estimated GDP. The outstanding stock of guarantees stood PKR 4,322 billion as of end-March 2026. This amount also includes guarantees issued for commodity operations undertaken by Federal Government SOEs namely Trading Corporation of Pakistan (TCP) and Pakistan Agriculture Storage & Services Corporation (PASSCO), which amounted to PKR 895 billion as of end March-2026.

Table-1: Summary of Outstanding Government Guarantees

(Rs in billion)

4. Sector, entity and interest rate wise share of the guarantees as of end March 2026 are as follows:

Table 2: Outstanding Position of GoP Guarantees

Note: The original maturities of major portion of Guaranteed Debt Stock were 5 years and above

5. The estimates of guarantees to be issued from April 2026 till June 2027 are as follows:

Table 3: Estimated Guarantees Issuance and Position (Q4 FY 26 and FY 27) (Rs in billion)

Note

• (i) Expected external guarantees are converted into PKR at exchange rate of 290

• (ii) The estimates are developed based on requests received from different PSEs and issuing wings during the ongoing Fiscal Year. This amount excludes roll-overs (iii) The guarantees of which LoCs have already been issued before March 2026 are incorporated in Opening Guaranteed Debt Position as at End March 2026

• (iv) Opening Stock includes guarantees issued for Commodity Operations by TCP & PASSCO which was mentioned separately in previous statements

Statement of Fiscal Risks

1. INTRODUCTION

The Statement of Fiscal Risks FY2026-27 provides a comprehensive assessment of key risks that could affect Pakistan’s fiscal outlook. It covers macroeconomic, revenue, debt, SOE, climate change, natural disasters, commodity financing and global price shocks. In comparison to the FY 2025-26 budget estimates, the quantified deviations are presented as percentage points of GDP. By estimating the potential fiscal impact of these risks, it also proposes mitigation measures to support fiscal discipline, strengthen risk management, and enhance the resilience of public finances.

ANALYSIS OF FISCAL RISKS

MACROECONOMIC RISKS

Macroeconomic risks mainly arise from a slowdown in economic activity, which could lead to weaker-than-expected real GDP growth and affect the fiscal stance. A 1 percentage point decline in real GDP growth could lower government revenues through reduced tax collections, while also increasing expenditure pressures, particularly on social safety nets. The combined impact is estimated to widen the fiscal deficit by around 0.2 percent of GDP in FY2026-27. Under this scenario, upward pressure on inflation and exchange rate depreciation could further strain public finances.

REVENUE-RELATED RISKS

Revenue collection remains exposed to lower tax elasticity, slowdown in economic activity, shortfalls in non-tax receipts, and structural challenges in reducing the tax gap. The FY2026-27 revenue projections are based on continued administrative reforms, rationalization of tax structures, and expansion of the tax base. However, if tax revenue grows lower than expected, for instance, 10 percent

lower than budget estimates, it could result in a reduction of 0.7 percent of GDP from the budget estimates in FY 2026-27. Revenue risks may also arise from a 30 percent decline in SBP surplus profits, which could increase the deficit by around 0.3 percent of GDP in FY 2026-27. Similarly, a 20 percent shortfall in petroleum levy collection could add 0.2 percent of GDP to the fiscal deficit in FY 2026-27.

Moreover, tax expenditures remain a significant structural revenue risk as expanded exemptions and concessions could widen the fiscal deficit by 1.3 percent of GDP in FY 2026-27 estimates.

DEBT-RELATED FISCAL RISKS

Debt servicing costs represent a significant fiscal vulnerability, as the debt portfolio remains exposed to interest rate movements, exchange rate depreciation, and refinancing pressures. A 200-basis point increase in domestic interest rates and a 100-basis point rise in external interest rates could raise interest payments beyond budgeted estimate, widening the fiscal deficit by an estimated

0.4 percent of GDP. Exchange rate depreciation could also increase the rupee cost of external debt servicing, although its impact on the FY2026-27 fiscal deficit is expected to remain relatively limited due to stable exchange rate. Refinancing risks may further increase if there is greater reliance on short-term instruments, which could weaken the debt maturity profile, raise rollover requirements, and expose the budget to higher interest rate volatility. Under this scenario, the fiscal deficit could increase by around 0.8 percent of GDP compared to FY2026-27 budget estimates.

STATE-OWNED ENTERPRISES RELATED FISCAL RISKS

State-Owned Enterprises pose fiscal risks through lower dividend payments and higher government financial support to loss-making entities. Structural inefficiencies, weak governance, and the burden of public service obligations continue to affect SOE profitability and may reduce their net earnings. A 6.0 percent shortfall in SOE dividend payments is estimated to widen the fiscal

deficit by around 0.02 percent of GDP against the FY2026-27 target. However, substantial fiscal risk may arise from increased government financial support to SOEs. Under this scenario, if financial support reaches 1.5 percent of GDP, it could increase the fiscal deficit by around 0.4 percent of GDP relative to FY202627 estimates. Henceforth, while lower dividend payments may have a modest direct fiscal impact, continued support for loss-making SOEs could create significant pressure on the fiscal position.

CLIMATE CHANGE-RELATED FISCAL RISKS

The fiscal impact of climate change varies across mitigation and high-emission scenarios. Under RCP 2.6, which represents an ideal mitigation pathway, higher spending on green infrastructure, climate adaptation, and mitigation measures could raise the fiscal deficit by around 0.2 percent of GDP relative to the FY2026-27 budget baseline. However, these investments are expected to support economic activity and strengthen climate resilience over the medium term, particularly if backed by private-sector participation and international climate financing.

In contrast, under RCP 8.5, which reflects a high-emission and adverse climate pathway, the near-term fiscal impact is estimated to remain limited, increasing the fiscal deficit by around 0.01 percent of GDP in FY2027. However, this risk could rise significantly over the medium term if climate-related shocks become more frequent and severe, leading to higher infrastructure damage, emergency spending, agricultural losses, and weaker revenue collection. These projections suggest that climate risks may appear modest in the short run, but could create a growing fiscal burden if adaptation, mitigation, and climate financing efforts remain insufficient.

NATURAL DISASTERS RELATED FISCAL RISKS

Natural disasters remain one of the largest fiscal risks, given Pakistan's exposure to floods, droughts, heatwaves, and other climate-related shocks. These events frequently cause unexpected fiscal pressures, necessitating immediate, unbudgeted expenditure for emergency relief. Without dedicated disaster risk financing

mechanisms, an average disaster event could increase the fiscal deficit to 1.5 percent of GDP, constituting the largest deviation among all identified fiscal risks. However, with disaster risk financing, the fiscal outlook changes. Under this scenario, the fiscal deficit for FY2026-27 will increase by 0.4 percent of GDP.

OTHER FISCAL RISKS

COMMODITY FINANCING OPERATIONS AND FISCAL RISK

The Federal Government faces significant fiscal exposure arising from guarantees issued to provincial governments and Public Sector Enterprises for commodity financing operations. Assuming a 25 percent probability of guarantees' actualization, the federal fiscal deficit could increase by 0.1 percent of GDP in FY2026-27.

GLOBAL COMMODITY PRICE SHOCK AND FISCAL RISK

Statement of Fiscal Risk identifies significant fiscal vulnerabilities associated with a potential rise in global oil prices particularly in the context of current Middle East conflict, which may likely result in contraction of petroleum levy receipts and an increase in energy-related subsidies. An international oil price shock during FY 2026-27 with a likely decision to waive full price pass-through to domestic consumers would result in a decline in petroleum levy receipts. At the same time, to protect domestic consumers, particularly low-income households, the Government would need to raise subsidies. Rising international oil prices, specifically a $40 per barrel increase, are projected to add 0.8 percent of GDP to the fiscal deficit in FY 2026-27.

2. FISCAL RISK MITIGATION STRATEGIES

The Government's fiscal-risk mitigation strategy is based on four pillars: maintaining a credible macro-fiscal framework, strengthening revenue mobilization and expenditure discipline, reducing contingent liabilities, and building fiscal buffers against shocks. Immediate priorities include protecting the primary surplus, improving tax compliance, rationalizing untargeted subsidies, strengthening debt management, and enhancing monitoring of SOEs, guarantees,

commodity operations, and climate-related fiscal exposures.

To mitigate revenue-related fiscal risks, the Government has established a dedicated tax policy function while strengthening tax administration, risk-based enforcement, and digital integration. Over the medium term, reforms prioritize broadening the tax base, rationalizing exemptions, and enhancing economic documentation. Furthermore, policy design focuses on simplifying procedures and safeguarding petroleum levy and non-tax revenue through increased transparency and inter-provincial coordination.

The financial performance of the SOE portfolio is improving through rigorous performance-based contracts and the accelerated privatization or liquidation of non-strategic, loss-making entities. These measures are expected to mitigate the recurring flow of liabilities that currently challenge medium-term fiscal targets. Further, the gap between climate action underscores that investing in green projects is not merely an environmental consideration but a critical strategy for resilience and prudent fiscal management.

This Statement of Fiscal Risks provides policymakers and stakeholders with a clear, quantified view of key fiscal vulnerabilities that could affect the fiscal outlook over the medium term. It recognizes uncertainties in economic conditions and external shocks, while proposing proactive, cross-sectoral actions to enhance fiscal resilience, improve transparency, and maintain macro-fiscal stability and ongoing challenges.

STATEMENT OF ESTIMATED TAX EXPENDITURE

Section 8 of the Public Finance Management Act, 2019 provides that the Federal Government shall, in respect of every financial year cause to be laid before the National Assembly, Finance Bill consistent with Article 73 of the Constitution including a statement of estimated tax expenditure of the Federal Government.

2. Tax Expenditure Report 2026 providing the details of tax expenditure in FY2024-25 which involves tax expenditure of Sales Tax of Rs. 1,273.97 billion, a tax expenditure of Income Tax of Rs. 579.69 billion, and a tax expenditure of Customs Duty of Rs. 499.13 billion, arriving at a total estimated tax expenditure of Rs. 2,352.8 billion, is being laid before the Parliament.

(Rashid Mahmood) Chairman FBR/ Secretary Revenue Division

Dated: 12^th June, 2026

Medium-Term Budgetary Statement (FY2026-27 to FY2028-29)

Federal Government presents the Medium-Term Budgetary Statement as part of the Annual Budget Statement in accordance with Section 5 of the Fiscal Responsibility and Debt Limitation Act, 2005 (as amended to date). The Statement describes the Government’s medium-term fiscal strategy aimed at preserving macroeconomic stability, strengthening fiscal sustainability, reducing public debt vulnerabilities, and fostering sustainable and inclusive economic growth.

In FY2025-26, Pakistan's economy made significant progress towards stabilization, with focus shifting to growth led through export and taxation reforms. Improvements in economic activity, external sector stability, fiscal performance, and investor confidence have strengthened the foundations for higher and more sustainable growth. Building on these gains, the Government remains committed to advancing reforms that enhance productivity, competitiveness, exports, investment, digital transformation, and private sector-led growth over the medium term.

Fiscal policy over the medium term will remain anchored in the principles of sustainability, efficiency, and transparency. The Government will continue pursuing fiscal consolidation through sustained revenue mobilization, expenditure rationalization, and strengthened public financial management. Tax policy and administration reforms, including broadening of the tax base, digitalization of tax processes, enhanced compliance measures, and modernization of revenue administration, are expected to strengthen domestic resource mobilization and create fiscal space for priority expenditures while maintaining a primary surplus and a declining fiscal deficit trajectory.

On the expenditure side, the Government will continue to prioritize allocations that support human development, social protection, economic growth, and national resilience. Special emphasis has been placed on education, health, poverty alleviation, youth development, and gender-responsive interventions. To improve access to healthcare services, an additional allocation of Rs. 1 billion has been provided in FY2026-27 for the provision of free medicines in Federal Government hospitals. Enhanced grant allocations have also been made to the Higher Education Commission to support higher education and research, while funding for the Benazir Income Support Programme (BISP) has been strengthened to protect vulnerable segments of society and promote social inclusion.

The Government remains committed to maintaining adequate investment in development priorities through the Public Sector Development Programme, with a focus on infrastructure, water resources, energy, information technology, climate resilience, and productive sectors of the economy. At the same time, expenditure efficiency will be enhanced through continued austerity measures, rightsizing of government functions, pension reforms, improved public investment management, and outcome-oriented budgeting.

Recognizing the growing fiscal implications of climate change and natural disasters, the Government is strengthening climate-responsive budgeting and disaster-risk management within the medium-term fiscal framework. Ongoing reforms have been designed to integrate AI into public finance management through development of an AI-enabled digital infrastructure for climate budgeting in Pakistan. This will improve the overall efficiency of the tagging process, transparency, resource allocation, and monitoring of climate-related expenditures. These initiatives are expected to strengthen fiscal resilience while supporting Pakistan’s climate adaptation and sustainability objectives.

Over the medium term, the Government will continue to pursue prudent debt management policies aimed at reducing fiscal vulnerabilities, extending debt maturities, diversifying financing sources, and containing debt-servicing costs. Supported by continued structural reforms, improved fiscal governance, and responsible macroeconomic management, the medium-term budgetary framework seeks to balance the objectives of economic growth, social protection, development, and fiscal sustainability, thereby laying the foundation for a more resilient and prosperous economy.

Climate Budget Statement

Climate change continues to pose significant economic, fiscal, environmental, and social challenges to Pakistan, requiring sustained policy attention and resource allocation. Recognizing the macro-fiscal implications of climate and disaster-related risks, the Federal Government has adopted climate budgeting as a governance mechanism to mainstream climate considerations into planning, budgeting, implementation, monitoring, and reporting across federal ministries, divisions, and departments. This approach supports informed decision-making and strengthens the integration of climate priorities into public financial management systems.

Climate Budget Tagging (CBT) has been institutionalized to identify, track, and report climate-responsive expenditures in accordance with national climate policy priorities. Through a consultative process involving relevant stakeholders, more than 5,000 cost centres have been mapped within the SAP system under adaptation, mitigation, and other supporting climate-related categories. The Government has further strengthened the climate budgeting framework through the operationalization of a comprehensive Climate Budget Governance System, enabling more systematic monitoring and reporting of climate-related public expenditures.

As part of the Budget Call Circular, Green Budgeting has been introduced as an integral component of fiscal risk management. Ministries, divisions, and departments are required to identify and report expenditures related to climate action, environmental protection, renewable energy, sustainable agriculture, biodiversity conservation, disaster preparedness, and other green economy initiatives. In addition, disaster budget tagging has been introduced to improve the identification and reporting of disaster-related expenditures and strengthen fiscal preparedness against natural and climate-induced disasters.

The scope of climate budgeting has also been expanded beyond expenditure. Climate tagging has been extended to subsidies, grants, and climate-relevant revenues to provide a more comprehensive assessment of climate-related fiscal interventions. These measures will facilitate improved monitoring of climate-responsive spending and revenue measures and support evidence-based policy formulation.

To further advance these reforms, Finance Division has developed an AI-enabled digital infrastructure for climate budgeting comprising climate budget tracking, AIassisted climate budget tagging, and digitized reporting mechanisms. An integrated dashboard, linked with SAP, will enable ministries, divisions, and departments to submit climate-related information through AI-supported digital forms and access analytical reports, thereby improving the quality, consistency, transparency, and accessibility of climate budget information.

For FY2026-27, climate-responsive allocations constitute 1 percent of the current budget and 11 percent of the development budget. At least 44% of subsidies are favorably climate-responsive either directly or indirectly. These allocations reflect the Government's continued commitment to strengthening climate resilience, supporting mitigation efforts, managing disaster-related fiscal risks, and promoting sustainable and green economic development through targeted fiscal interventions.

Gender Budget Statement

Article 25 of the Constitution of the Islamic Republic of Pakistan, 1973 provides for equality of all citizens before the law and prohibits discrimination on the basis of sex, while Article 34 directs the State to ensure full participation of women in all spheres of national life. In line with these constitutional provisions, the Federal Government remains committed to reducing gender disparities and promoting inclusive development through gender-responsive budgeting.

Gender inequality continues to remain a structural challenge, with gaps observed across key development indicators including education, health, employment, economic participation, and access to opportunities. Addressing these disparities is essential not only for ensuring social equity but also for realizing the full economic potential of the country. In this context, gender-responsive public financial management has been strengthened as an integral part of budget formulation and policy planning.

A key constraint in advancing gender-sensitive policy-making is the availability and quality of gender-disaggregated data. To address this gap, the Federal Government has institutionalized gender budget tagging to identify, classify, and monitor genderrelevant public expenditure across ministries, divisions, and departments. More than 5,000 cost centres of the federal budget have been mapped under six major gender classifications, including: (i) equality and quality in education, (ii) health and wellbeing, (iii) governance and data systems, (iv) employment and economic opportunity, (v) safety and security, and (vi) agency, political participation and meaningful engagement. This framework enables improved tracking of gender-sensitive allocations and supports evidence-based policy formulation.

Gender-responsive budgeting also contributes to monitoring progress on crosscutting Sustainable Development Goals (SDGs), particularly in areas such as education, health, nutrition, and social inclusion. It strengthens transparency in public expenditure by enabling policymakers to assess the gender impact of government programs and initiatives more effectively.

For FY2026-27, gender-responsive allocations constitute 9% percent of the current budget and 8% percent of the development budget. These allocations reflect the Government’s continued commitment to promoting gender equality, improving women’s access to education, health, and economic opportunities, and strengthening institutional mechanisms for gender mainstreaming across public sector programs and projects.

Disaster Budget Statement

Disaster risk in Pakistan is shaped by a combination of extreme natural events and underlying vulnerabilities, which are further exacerbated by the impacts of climate change. Owing to its diverse geography and evolving climatic patterns, Pakistan remains highly exposed to multiple forms of natural disasters.

In response to these challenges, the Government of Pakistan has established a comprehensive institutional and legal framework for disaster risk management, including the enactment of relevant laws, establishment of disaster management authorities at the federal and provincial levels, and creation of dedicated disaster risk management funds. These measures aim to strengthen preparedness, improve response mechanisms, and enhance recovery and reconstruction capacity.

Recognizing the need for improved fiscal transparency and evidence-based policymaking, the Federal Government has institutionalized disaster budget tagging as part of public financial management reforms. This initiative enables systematic identification, classification, and tracking of disaster-related expenditures across federal ministries, divisions, and departments. More than 5,000 cost centres have been mapped under four major disaster classifications, namely Disaster Preparedness, Disaster Response, Recovery & Rehabilitation, and Reconstruction.

Building upon this framework, the Budget Call Circular for FY2026-27 has further strengthened disaster-responsive budgeting through the introduction of a structured classification system. This includes standardized coding of disaster-related expenditures (DRPPS, DRRSE, DRRRN, and DRRCN) and categorization of activities based on their relevance to the National Disaster Management Plan. Expenditures are assessed according to defined weighting groups reflecting their

direct or indirect contribution to disaster risk reduction, preparedness, response, recovery, and reconstruction outcomes.

This enhanced framework improves consistency in reporting, strengthens interagency coordination, and enables better alignment of public spending with disaster risk management priorities. It also supports improved monitoring and evaluation of fiscal resources allocated for disaster resilience and recovery.

For FY2026-27, disaster-responsive allocations constitute 4% percent of the current and 0.04% of development budget. These allocations reflect the Government’s continued commitment to strengthening disaster preparedness, improving emergency response systems, and enhancing recovery and reconstruction capacity in order to reduce the human and economic impact of natural disasters.

Government of Pakistan Finance Division

STATEMENT OF RESPONSIBILITY

Stated that all policy decisions with material economic or fiscal implications that the Federal Government has made before 12^th June 2026, the day on which the contents of the economic policy statements were finalized and all other circumstances with material economic or fiscal implications of which I was aware before that day, have been communicated to the Secretary of Finance in terms of Section 10(1)(a) of Fiscal Responsibility and Debt Limitation Act, 2005 (as amended to date).

The statement to the best of my knowledge provides for: -

• a. The integrity of the disclosures contained in the economic policy statement;

• b. the consistency with requirements of the Act of the information contained in the economic policy statements; and

• c. the omission from the economic policy statement of any decision or circumstance specified in sub-section (3) of section 8 of the Act.

(Muhammad Aurangzeb) Minister for Finance and Revenue

Government of Pakistan Finance Division

STATEMENT OF RESPONSIBILITY

Stated that the Finance Division, in terms of Section 10(1)(b) of Fiscal Responsibility and Debt Limitation Act, 2005 (as amended to date), has supplied to the Minister for Finance and Revenue, using its best professional judgment on the basis of economic and fiscal information available to it before 1 2^th June 2026, the day on which the contents of the economic policy statements were finalized, an economic and fiscal statement incorporating the fiscal and economic implications of those decisions and circumstances, but any decisions or circumstances that the Minister for Finance and Revenue has determined under Subsection (3) of Section 8 of the Fiscal Responsibility and Debt Limitation Act 2005 (as amended to date) have not been incorporated in the statement.

IMDAD ULLAH BOSAL

Secretary to the Government of Pakistan

Finance Division Islamabad, the 12^th June, 2026