THERE was widespread speculation and uncertainty surrounding the Federal Budget 2026-27, as there was little hope of meaningful concessions or relief for the salaried and middle classes. This budget was never expected to resolve all of Pakistan’s deep-rooted problems that have accumulated over decades due to inconsistent policies, interruptions in the democratic process a culture of ad hoc decision-making since the country’s inception. It was unrealistic to expect that issues such as poverty, unemployment, illiteracy, fiscal deficits, trade deficit, tax shortfalls, inflation numerous other economic challenges could be addressed through a single budget. However, the government claims that economic stability has been achieved and that the country is now on a steady path toward recovery.
It is an open secret that successive governments have often chosen the easier option of imposing indirect taxes rather than taxing the wealthiest segments of society. This affluent class enjoys a strong presence in Parliament and provincial assemblies and continues to benefit from an unstable political system. Consequently, it may still take years before meaningful relief reaches the poorer sections of Pakistani society. The real challenge was to bring into the tax net those who own multiple palatial houses equipped with every luxury, highly expensive vehicles exceeding 5000cc, valuable properties abroad, large industrial units, vast agricultural estates, extensive real estate holdings major departmental stores. However, governments have repeatedly failed to tax these influential groups effectively due to the absence of an independent accountability system and the persistence of a corrupt political structure.
Does the government have the will, courage institutional capacity to question the sources of wealth from which these assets were acquired? Unfortunately, the system has often provided safe havens through various amnesty schemes introduced from time to time. Nevertheless, that is a much broader debate. For now, let us focus on the budget itself. This version is suitable for use in a newspaper column or budget commentary. The economy continues to face numerous challenges, including a fiscal deficit, a large trade imbalance, low GDP growth, a poor tax-to-GDP ratio compared with regional countries, low productivity in agriculture and industry, declining foreign investment, shrinking foreign exchange reserves, rising public debt increasing government expenditures.
Despite these challenges, the government maintains that economic stability has been achieved and that the coming years will bring prosperity to Pakistan. Under the IMF programme, the government has succeeded in reducing the fiscal deficit from nearly 10 percent to below 4 percent, a development that deserves appreciation. However, such fiscal discipline is not new. Pakistan has approached the IMF almost two dozen times and perhaps no other country has relied so frequently on IMF support. Historically, economic growth has been pursued through excessive borrowing and consumption, while periods of reduced borrowing have often resulted in cuts to development spending.
According to the Pakistan Economic Survey 2025-26, the economy grew by 3.7 percent against the government’s target of 4.2 percent. Agriculture expanded by 2.89 percent, industry by 3.51 percent the services sector by 4.09 percent. Foreign exchange reserves improved largely due to financial support from Saudi Arabia, while overseas Pakistanis continued to strengthen the economy through increasing remittances.
However, marginal increases in income are insufficient to help ordinary citizens make ends meet. Pakistan’s low per capita income and its ranking of 168th on the Human Development Index remain serious concerns. Due to financial constraints, little is left for education, healthcare social welfare. The Economic Survey reveals that only about 0.8 percent of GDP is being spent on education and a similar amount on health. Ironically, the (present) government had promised in 2014 to allocate at least 4 percent of GDP to each sector. No country has achieved sustained economic growth without investing adequately in education, vocational training healthcare.
Under the National Finance Commission (NFC) arrangement, provinces are expected to generate surpluses for the federal government amounting to more than Rs. 2 trillion, reversing the previous trend where the federation provided grants to provinces. Consequently, provincial governments may be compelled to curtail spending on human development. Being largely IMF-driven, the budget offers several incentives to the business community to promote exports and provides relief in annual turnover taxes, provided businesses digitalize their operations. Documentation of the economy is essential. India, for example, moved towards comprehensive documentation of transactions years ago, bringing much of its economy into the formal sector.
The salaried class expected substantial relief but received only a 7 percent increase in salaries. Pensioners were equally disappointed. As senior citizens, they face growing healthcare expenses and the burden of supporting dependent children. Instead of providing meaningful support, the government has offered only marginal increases, which may further encourage corruption among public servants struggling to maintain their standard of living.
At the same time, the imposition of an 18 percent sales tax amid persistent inflation is inconsistent with the modest increase in salaries and pensions. Social media has been highly critical of the 7 percent increase granted to government employees while parliamentarians reportedly received salary increases of nearly 600 percent. Such disparities have further weakened public confidence in the government’s claim that this is the best budget and that the economy is firmly on track.
The reality of poverty presents a different picture. Official figures indicate poverty rates of 29 percent in urban areas and 36 percent in rural areas, while World Bank estimates place overall poverty at around 46 percent. These figures contradict the optimistic narrative presented by government ministers. Poverty reduction and job creation no longer appear to be central priorities. Increasingly, loans are being obtained merely to service previous debts. Citizens are rightly asking where the record borrowing of recent years has been spent and why so many Pakistanis have fallen deeper into poverty.
The government’s claim that the current budget will significantly boost exports also appears unrealistic. Rising costs of energy, gas electricity have increased the cost of production, undermining Pakistan’s competitiveness in regional markets. Unless production costs are brought under control, the dream of competing effectively with neighbouring economies will remain elusive. Although official indicators suggest that economic targets have largely been achieved, public sentiment tells a different story. People continue to suffer from declining purchasing power fiscal discipline appears to have been achieved largely at the expense of human welfare.
The release of the Pakistan Economic Survey 2025-26, therefore, conveys a mixed but important message. On the one hand, Pakistan has successfully pulled itself back from the brink of economic paralysis. On the other hand, the survey demonstrates that stabilization alone cannot guarantee prosperity. Pakistan now stands at a critical crossroads. It can either build upon the hard-earned gains of stability and embark on a path of sustainable, inclusive growth or once again fall into the familiar cycle of low growth, fiscal stress dependence on external assistance. The choices made today will determine whether economic stabilization translates into lasting prosperity for future generations.
—The writer is Senior Rtd bureaucrat, based in Lahore.
