Pakistan warns of economic challenges threatening 2026-27 budget outlook

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Islamabad: Pakistan’s government has cautioned that several economic and external factors could significantly impact the country’s fiscal outlook for the 2026-27 financial year. This warning comes according to a fiscal risk statement submitted to parliament.

The report, presented by Finance Minister Muhammad Aurangzeb and Finance Secretary Imdad Ullah Bosal under the Public Finance Management Act 2019, outlines major risks. These risks could widen the fiscal deficit.

According to Dawn, the government has identified rising global oil prices as a major concern. This is particularly worrying amid ongoing tensions in the Middle East.

The Finance Ministry warned that if authorities choose not to pass the full increase in fuel prices on to consumers, petroleum levy collections could decline. Meanwhile, subsidy requirements could increase.
As cited by Dawn, a USD 40 per barrel rise in oil prices could expand the fiscal deficit by 0.8 per cent of GDP during FY 2026-27.

Dawn further reported that slower economic growth presents another significant challenge.
A one-percentage-point decline in real GDP growth could reduce tax revenues and simultaneously increase social protection spending. Consequently, this could potentially widen the fiscal deficit by around 0.2 per cent of GDP.

Revenue generation also remains vulnerable.

According to Dawn, a 10 per cent shortfall in tax revenue growth compared to budget targets could reduce government resources by 0.7 per cent of GDP.

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Additionally, a 30 per cent drop in profits transferred by the State Bank of Pakistan could raise the deficit by 0.3 per cent of GDP. At the same time, lower-than-expected petroleum levy collections could add another 0.2 per cent.

The fiscal risk statement, as reported by Dawn, also highlighted debt-servicing costs as a major vulnerability.

Rising domestic and external interest rates, along with refinancing pressures, could substantially increase government expenditure.

State-owned enterprises pose additional risks through reduced dividend payments and potential financial support requirements.

According to Dawn, climate change and natural disasters remain critical concerns.

The report said that while green adaptation spending may moderately impact fiscal balances, the absence of dedicated disaster financing mechanisms could cause an average natural disaster to increase the fiscal deficit by as much as 1.5 per cent of GDP.

(ANI)

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