Budget 2026–27: Finance Division projects 5.1% GDP growth, expands climate and disaster budgeting

The Finance Division has issued the Budget Call Circular for fiscal year 2026–27, projecting economic growth at 5.1% and inflation at 6.5%, while rolling out expanded requirements for climate, green and disaster-related budgeting across the federal government.

Circulated to all ministries and principal accounting officers, the circular instructs federal entities to identify, classify and tag revenues and expenditures with climate and environmental relevance. Ministries have been asked to submit actual figures for FY2024–25, revised estimates for FY2025–26 and budget estimates for FY2026–27 in line with the new framework.

The instructions align with the government’s provisional macroeconomic framework, which forecasts GDP growth of 4.0% in FY2025–26 and 5.1% in FY2026–27, with inflation projected at 6.1% and 6.5%, respectively. Officials said the outlook is based on easing global commodity prices and the continuation of structural reforms.

Under the circular, federal revenues are classified into tax revenues collected by the Federal Board of Revenue and non-tax revenues administered by the Finance Division. The climate relevance of non-tax revenues will now be assessed based on the environmental impact of the underlying activity, with levies on environmentally harmful activities treated as linked to climate objectives.

To standardise reporting, the Finance Division has introduced four categories for green-related tax and non-tax revenues: energy, transport, pollution and natural resources. These categories cover items such as petroleum levies, emissions-related charges, motor vehicle and road usage fees, waste management charges and levies on the extraction of natural resources, including water and forests.

The circular also extends climate tagging to subsidies, a major component of federal spending. From FY2025–26 onward, ministries will be required to assess subsidies using a new reporting format, classifying them as climate adaptation or mitigation. Adaptation includes support for agricultural risk management and climate-resilient infrastructure, while mitigation covers clean energy, renewables, energy efficiency, mass transit and electric vehicles.

Subsidies will further be evaluated based on their climate impact, ranging from directly favourable to potentially unfavourable, allowing the government to assess alignment between fiscal support and environmental objectives.

In addition, the Finance Division has reaffirmed disaster budgeting requirements, citing Pakistan’s exposure to climate-related risks. Disaster-related spending will continue to be tagged across the federal budget, covering both pre-disaster measures such as prevention and preparedness, and post-disaster response and reconstruction, with dedicated codes introduced to improve transparency and tracking.