As the federal government gears up to present the budget for fiscal year (FY) 2025–26, a recent economic report by a Pakistani think tank Tabadlab has warned policymakers to not repeat past mistakes. According to reports, the group has specifically warned against pursuing “bad growth” strategies, which it defines as short-term booms that later collapse under structural weaknesses.

Tabadlab’s latest report has advised the government to refrain from raising tax rates, highlighting how Pakistan already has some of the highest tax burdens in the region. Instead of focusing on revenue through a hike in taxation, the report called for long term planning. It warned that encouraging consumption led growth could push the country back into a familiar boom and bust cycle. 

This is because Pakistan’s foreign exchange reserves remain critically low. Data from reports affirms that as of the start of June, reserves can barely cover two months of imports.

Despite the aforementioned vulnerabilities, the report acknowledged that Pakistan is displaying signs of macroeconomic stability. Inflation has slowed to a manageable five percent while interest rates have been fallen from a staggering 21 percent to a more reasonable 11 percent.

Furthermore, the rupee has settled near Rs280 per dollar with the risk of default having eased. Debt levels have also remained largely in check causing Tabadlab to attribute macroeconomic stability to a multitude of factors. 

These factors include discipline, implementing austerity measures, and luck. The macroeconomy has been “lucky” as it has been spared from a high trade deficit owing to a decline in global oil prices. 

The report outlined that while the Federal Board of Revenue (FBR) is expected to fall short of its ambitious Rs13 trillion target by around Rs1 trillion, it is still set to collect approximately Rs12 trillion, an improvement of Rs3 trillion from last year’s Rs9 trillion. 

On the expenditure side, the report mentions how the government has managed to rein in costs. The reduction in interest rates has cut debt servicing expenses by roughly Rs1 trillion. Similarly, austerity measures led to significant savings in public sector development spending. 

The initial Public Sector Development Programme (PSDP) target of Rs1.4 trillion was revised down to Rs1.1 trillion, but actual spending in FY25 stood at only Rs450 billion.

However, Tabadlab highlighted that this stability came at a cost. Poverty has increased by 6.5 percentage points over the past seven years, and the unemployment rate remains stuck at an alarmingly high eight percent.