Islamabad: The government of Pakistan has announced its Federal Budget for Fiscal Year 2027 with an outlay of Rs18.8 trillion, marking a 20% increase from the previous fiscal year. Aiming to sustain a primary surplus for the fourth consecutive year, the budget introduces tax relief for salaried individuals and corporations while setting ambitious revenue targets to manage a fiscal deficit projected at 3.5%.

According to JS Global, the budget, presented on June 12, 2026, assumes a significant revenue growth of 18% through tax administrative measures and taxes on retailers. This growth is crucial for meeting the targets set by the International Monetary Fund (IMF), which include an 11.8% Tax to GDP ratio. The Federal Board of Revenue (FBR) has been tasked with achieving a revenue target of Rs15.3 trillion, aligned with IMF requirements, necessitating additional tax measures worth Rs430 billion.

The budget outlines several new tax initiatives, including the Asaan tax scheme for retailers, taxes on life insurance, and increased duties on certain imported vehicles. Concurrently, it provides relief by lowering tax rates for middle-income earners and reducing the super tax for corporations. Exporters, especially in the goods and IT sectors, along with the construction industry, are also set to benefit from various incentives.

In terms of non-tax revenue, the federal government has secured a provincial grant of Rs1.035 trillion, compensating for a decline in expected profits from the State Bank of Pakistan. The overall non-tax revenue is anticipated to grow by 5% to Rs5.33 trillion.

The budget also sets macroeconomic targets with a GDP growth projection of 4.0%, inflation at 8.2%, and a current account deficit at 0.7% of GDP. However, these projections differ from the IMF's expectations, which predict slightly lower GDP growth and higher inflation.

Market analysts view the budget positively, noting its focus on economic stimulus while adhering to fiscal discipline. The reduction in super tax and incentives for the IT sector and exporters are expected to bolster market sentiment. The stock market is currently trading at a price-to-earnings ratio of 6.5x, indicating potential for returns, with an index target of 203,000 set for December 2026.

Despite the optimistic outlook, key risks remain, such as geopolitical tensions affecting oil prices and challenges in budget implementation.