South Asia Faces Inflation Pressures from Regional Conflict and Weather Disruptions

Finance Minister Muhammad Aurangzeb unveiled Pakistan's federal budget for FY2026-27 on Friday, targeting an 18% increase in tax revenues to meet IMF fiscal commitments, while proposing fresh tax measures worth Rs660–700 billion. Development spending was kept flat, with the National Economic Council setting a combined federal and provincial development budget of Rs3.218 trillion after trimming earlier plans by over Rs1 trillion — Punjab's development allocation was cut by nearly half. The budget offers targeted income tax relief for salaried individuals earning between Rs230,000 and Rs341,000 per month, though those earning Rs100,000–Rs183,000 monthly are unlikely to see changes. A new 'Fixed Tax Asaan Scheme' aims to bring small traders with annual turnover up to Rs200 million into the tax net, a move that has drawn criticism from small business owners who argue the government should first reduce its own expenditure. The budget was presented against a backdrop of rising inflation — driven partly by the ongoing Middle East conflict — with GDP growth projected at 3.7% for the current year, below the 4.2% target, and forecast at 4% for the coming year with 8.2% inflation. Opposition lawmakers from Imran Khan's party disrupted proceedings inside parliament, while government employees staged protests outside demanding salary increases and higher pensions.