FY26 Budget
ISLAMABAD: The federal government has set the exchange rate at Rs290 to a US dollar as the official benchmark for preparing the budget for fiscal year 2025–26, anticipating a modest 3.6% depreciation of the rupee. The projection reflects optimism over a largely stable external sector, supported by a continued programme with the International Monetary Fund (IMF).
Sources told that the Ministry of Finance has issued directives to all government departments to use the Rs290/$ exchange rate for preparing budget estimates. This rate will be applied across key areas such as defence expenditures involving foreign procurements, foreign debt servicing, allocations to Pakistan’s missions abroad, and the Public Sector Development Programme (PSDP).
The projected exchange rate reflects a depreciation of Rs10 compared to the Rs280/$ rate used for revising estimates of the outgoing fiscal year. Notably, in the current fiscal year, the budget was also based on a Rs290/$ assumption, and the rupee remained relatively stable throughout, with the interbank rate recorded at Rs281.56 on Monday.
The IMF, in its recent evaluation, urged Pakistan to maintain a more flexible exchange rate regime, which it said would allow for better adjustment to external and domestic shocks, while also assisting in rebuilding foreign exchange reserves. The IMF estimates Pakistan’s official reserves to rise to $17.7 billion in FY26, offering 2.8 months of import cover—an improvement compared to the current year.
Despite this outlook, the State Bank of Pakistan (SBP) holds a slightly more conservative view, projecting the rupee may trade closer to Rs299/$ in FY26. However, the finance ministry overruled this forecast and anchored the budget on the more optimistic Rs290/$ figure.
Pakistan’s economic outlook shows signs of stabilisation, largely owing to a controlled current account deficit of around 0.4% of GDP—equivalent to under $2 billion—which is expected to be comfortably financed through foreign inflows. Inflation is also expected to remain moderate, with the IMF forecasting it at 7.7% next year, supported in part by the stable rupee.
Interest payments on external debt are projected to reach Rs1.2 trillion, while total debt servicing is expected to be around Rs8.7 trillion. This figure may be revised downward following the recent interest rate cut by the SBP.
Meanwhile, Pakistan’s total external debt declined to $130.3 billion by the end of March 2025—a drop of $800 million from the previous year—thanks to reduced long-term liabilities and the central bank’s dollar purchases in the local market rather than reliance on fresh borrowing.
However, the country still faces a daunting $25 billion in external loan repayments in the upcoming fiscal year, though approximately $13 billion of this is expected to be rolled over by bilateral lenders.
Despite some reduction in external liabilities, Pakistan’s overall debt burden continues to grow. Total debt and liabilities climbed to Rs89.8 trillion by the end of March 2025, up 10.1% from the previous year. Of this, government debt rose sharply by nearly 13%, reaching Rs73.7 trillion.
The government is now finalising foreign debt requirements for the upcoming year, factoring in the need to strengthen reserves and meet maturing loan obligations.
