On August 18, 2025, Finance Minister Muhammad Aurangzeb announced that the Finance Division, in collaboration with the newly established Tax Policy Office (TPO), will lead the formulation of Pakistan’s 2026 federal budget, removing the responsibility from the Federal Board of Revenue (FBR) reported by The News.
Aurangzeb, speaking at the ‘Unlocking Capital Market Potential for Banks’ conference, stated, “The Tax Policy Office is now moving to the Finance Division. The FBR has nothing to do with policy matters.” The TPO, established in February 2025 and housed within the Finance Ministry, will use data modelling and revenue forecasting to develop tax policies.
Pakistan’s economy is transitioning from stability to growth, with a 2.7% growth rate in FY25, up from 2.5% in FY24. The government targets 4.2% growth for FY26. Fitch Ratings projects real GDP growth to reach 3.5% by 2027, driven by reforms and an improved sovereign credit rating (upgraded to ‘B-’/Stable from ‘CCC+’ in April 2025). Inflation has dropped from 38% in May 2023 to 4.1% in July 2025, with the State Bank of Pakistan halving the policy rate to 11% since May 2024, boosting private credit demand.
Aurangzeb highlighted upcoming policies, including an industrial policy led by Special Assistant Haroon Akhtar, tariff reforms to reduce customs duties over four to five years, and a Capital Market Development Council to mobilise funds via the Pakistan Stock Exchange (PSX), which recently crossed 140,000 points. These reforms aim to enhance industrial competitiveness and sustainable growth, independent of IMF influence.
The government is advancing a cashless economy by digitising federal salaries, pensions, and vendor payments through Raast or bank transfers. QR codes will be integrated into utility bills and government fee counters, including those for the Capital Development Authority and NADRA. Federal procurements will adopt standardized digital invoicing, with third-party validation to ensure transparency. Additionally, waived Right of Way charges for federal entities will facilitate nationwide fibre optic infrastructure, boosting digital connectivity.
Fitch notes that Pakistan’s banks are poised for growth, with private sector credit expected to rebound from a low of 9.7% of GDP in 2024. The impaired loan ratio improved to 7.1% by March 2025, supported by 26% loan growth. However, banks’ creditworthiness remains tied to the sovereign’s rating, with ongoing reforms critical to mitigating risks.
Aurangzeb emphasised avoiding past boom-and-bust cycles, focusing on sustainable growth. Upgrades by Fitch, S&P, and Moody’s reflect global confidence in Pakistan’s economic trajectory. The removal from the FATF grey list, driven by strong anti-money laundering laws, further strengthens the country’s financial standing.
