The Ministry of Finance has issued the Budget Call Circular for fiscal year 2026–27, projecting GDP growth at 5.1 percent and inflation at 6.5 percent. The circular also provides detailed instructions on green components of tax and non tax revenues, climate related subsidies, and disaster related budgeting.
According to sources, these new guidelines have been sent to all ministries and Principal Accounting Officers. Federal entities have been directed to identify, classify, and tag environmentally and climate relevant elements in their revenues and expenditures. Along with this exercise, ministries must submit actual figures for FY 2024–25, revised estimates for FY 2025–26, and budget estimates for FY 2026–27.
This expanded framework for climate and disaster related budgeting has been presented alongside the government’s medium term macroeconomic framework. Under this framework, economic growth is expected to reach 4.0 percent in FY 2025–26 and 5.1 percent in FY 2026–27, while inflation is projected to remain contained at 6.1 percent and 6.5 percent respectively. This improvement is attributed to easing global commodity prices and ongoing structural reforms.
Officials said that better classification and tagging of revenues, subsidies, and disaster related expenditures will help policymakers align fiscal policy with climate resilience, green growth, and sustainability goals. It will also improve transparency and accountability in the use of public resources, especially at a time when the country faces serious climate risks.
According to the circular, federal revenues have been divided into two categories: tax revenues under the Federal Board of Revenue (FBR), and non tax revenues managed by the Ministry of Finance. The climate relevance of non tax revenues will now be determined based on the environmental impact of the activity generating the revenue. Levies imposed on environmentally harmful activities, such as fossil fuel use, plastics, or hazardous waste, will be considered as having a positive linkage with climate objectives.
In line with international practices, the Ministry of Finance has defined four core sectors for classifying environmental tax and non tax revenues: energy, transport, pollution, and natural resources. These include petroleum levies, energy related greenhouse gas emissions, motor vehicles and road use, congestion charges, non energy pollution, waste management fees, noise pollution charges, and revenues from the use of natural resources such as water and forests.
The Budget Call Circular has also formally brought subsidies under the scope of climate tagging. Subsidies account for a large share of the federal budget. The government has already been identifying climate related expenditures under current spending and the development program since FY 2023–24. From FY 2025–26, Form III-C has been introduced for the review of subsidies.
Under the new mechanism, ministries will be required to identify each subsidy by cost center, sector, and budget estimate, and classify it under climate adaptation or mitigation. Adaptation subsidies will include support for agricultural risk management, crop insurance, and climate resilient infrastructure. Mitigation subsidies will cover clean energy, renewable sources, energy efficiency, power transmission, mass transit, and electric vehicles.
Each subsidy will also be categorized based on its climate impact, such as directly positive, indirectly positive, neutral, mixed impact, or potentially negative. This will help the government assess whether financial support aligns with environmental objectives or could increase environmental pressure.
At the same time, the Ministry of Finance has reiterated guidelines on disaster related budgeting, as Pakistan is highly vulnerable to climate induced natural disasters. Disaster related expenditure tagging will continue in the federal budget, covering pre disaster actions such as prevention, preparedness, and risk reduction, as well as post disaster actions such as relief, recovery, and reconstruction. Each category will be assigned specific codes at the cost center level to enhance transparency and monitoring.
