ISLAMABAD: The federal government has finalised multiple proposals to provide financial relief to government employees and pensioners in the upcoming fiscal year 2026-27 budget, sources confirmed on Thursday.

The measures primarily address rising inflation and increasing living costs, with a key proposal being a 10 percent increase in salaries of civil servants.

Final approval of any salary enhancement remains subject to federal cabinet endorsement and negotiations with the International Monetary Fund (IMF). Talks with the global lender are currently underway.

Sources indicate that one of the four ad-hoc allowances granted between 2022 and 2025 may be merged into the basic pay structure. This move aims to rationalise the salary package and provide more sustainable relief.

**Tax Relief Measures**

The government is considering targeted tax relief for mid-level employees. Officials are reviewing options for monthly salary earners between Rs100,000 and Rs200,000.

For annual income brackets between Rs1.2 million and Rs2.2 million, a reduction in income tax rates has been proposed to support the middle class.

These proposals come as petroleum product prices continue to exert pressure on household budgets, particularly affecting commuting costs for public sector workers.

**Conveyance Allowance Adjustments**

A significant recommendation involves doubling the conveyance allowance for employees in grades 1 to 19. This adjustment directly responds to higher fuel costs.

For senior officers in grades 20 to 22, authorities are examining a 50 to 75 percent increase in conveyance allowance.

Additionally, a disparity allowance for grades 1 to 16 has been recommended to ease financial hardships faced by lower-grade employees.

**Pensioner Relief Package**

Pensioners are also set to receive notable benefits. Proposals include an increase of up to 80 percent in pensions, calculated on the basis of average inflation over the last two years.

The government is further considering the inclusion of armed forces personnel in the contributory pension scheme starting from the next fiscal year.

All proposals will be presented before Prime Minister Shehbaz Sharif and the federal cabinet for deliberation. Final decisions will follow consultations with the IMF and formal cabinet approval.

**Economic Context**

Pakistan’s public sector workforce, numbering over 1.5 million civil servants across federal and provincial departments, has faced significant inflation impact since 2022. Cumulative inflation during this period has exceeded 70 percent according to Pakistan Bureau of Statistics data.

Previous budgets provided ad-hoc relief through temporary allowances, but employees’ unions have repeatedly demanded their integration into basic pay for long-term financial stability.

The 2026-27 budget is being prepared under tight fiscal constraints as Pakistan continues its engagement with the IMF under the ongoing Extended Fund Facility programme.

**Market and Stakeholder Reactions**

Government employees’ associations have welcomed the reported proposals, describing them as steps in the right direction. However, they maintain that the relief must match current inflation levels to be meaningful.

Economic analysts note that any salary increase and tax relief will add to the government’s wage bill, which already constitutes a substantial portion of current expenditure.

The proposals also reflect the government’s attempt to balance fiscal discipline demanded by international lenders with domestic political and social pressures.

**Broader Implications**

Successful implementation of these measures could help stabilise the consumption patterns of middle-income households dependent on government salaries. This segment plays a key role in domestic demand-driven sectors including retail, education, and healthcare.

However, questions remain regarding the exact fiscal space available. Any major expansion in expenditure will require corresponding revenue measures or expenditure cuts elsewhere.

The final shape of the relief package will become clearer once the budget strategy paper is presented in the coming weeks.

Negotiations with the IMF will remain crucial in determining the extent of these relief measures, as the lender has consistently emphasised the need for expenditure control and broadening of the tax base.

Observers expect the government to announce the final budget proposals by early June, ahead of the formal budget session in the National Assembly.

The coming days are likely to see further stakeholder consultations as the finance ministry refines these recommendations into concrete budgetary allocations.