Prime Minister Shehbaz Sharif's government is set to present the annual budget on Friday, at a time when the South Asian country faces its worst economic crisis with months of delay in securing funding from the International Monetary Fund (IMF).
Iqbal said the growth target was realistic.
"We're taking those choices which take the country toward stability," he told a press conference in Islamabad after a meeting of National Economic Council (NEC) chaired by the prime minister approved the estimated budget figures.
He did not disclose other budget targets except for the GDP and development spending which he said will be 1150 billion Pakistani rupees ($4.02 billion).
Iqbal made the announcement hours after a government source gave the figures to Reuters, including the 3.5% GDP target, and a 21% inflation projection for the FY 2023-24.
Pakistan, which is also in political turmoil, has been caught up for months in an acute balance of payments crisis, with its central bank's foreign exchange reserves dipping to as low as to cover hardly a month of controlled imports.
Iqbal also pointed out the dismal condition of the economy, saying the government would not be able to pay off debt fully through federal revenue.
"This is a defining moment of where we've reached," he said. "(The country) will need to borrow for the rest of budget that includes salaries for the government, defense budget, development budget, pension, subsidies."
The estimated numbers were shared in the meeting ahead of the budget announcement, which could see changes in reviews in the lead-up to the presentation by Finance Minister Ishaq Dar in parliament, the source added.
The total outlay of the budget, or total spending, is expected to be 14.5 trillion Pakistani rupees ($50.70 billion), said the source. He added that the proposals also included a fiscal deficit target of 7.7% of GDP and a revenue collection target of 9.2 trillion Pakistani rupees ($32.17 billion).
The budget is being keenly watched as the government is caught between a painful fiscal adjustment reforms agenda set by the IMF, and to make room for any relief to the people ahead of a national election scheduled in early November.
For the outgoing fiscal year 2022-23, which ends on June 30, the country's GDP growth fell to 0.29% against last year's annual budget target of 5%, and a revised projection of 2% by the central bank.
Inflation posted at 38% in May is the highest in Asia.
The IMF's $1.1 billion funding, stalled since November, is critical for Pakistan to unlock other bilateral and multilateral financing to avert a debt default.
($1 = 286.2100 Pakistani rupees)
(Reporting by Asif Shahzad in Islamabad and Ariba Shahid in Karachi; Writing by Giban Peshimam; editing by Sudipto Ganguly and Ed Osmond)
By Asif Shahzad and Ariba Shahid
