Pakistan is approaching the Federal Budget 2026-27 at a time when the country stands at a highly sensitive economic crossroads. Pakistan today is a country of nearly 240 million people, with more than 60 percent of its population below the age of 30. Despite being a large emerging market economy of around 350 billion US dollars, the country continues to face structural challenges of poverty, unemployment, and fiscal imbalance.

Poverty levels are estimated around 25 to 30 percent depending on methodology, making inclusive economic policy an urgent necessity.

On one side, the government highlights improving macroeconomic indicators, declining inflation, relative exchange rate stability, increasing foreign exchange reserves, and renewed confidence from international financial institutions. According to the government’s provisional macroeconomic framework for FY2026-27, Pakistan is targeting economic growth of around 5.1 percent, while inflation is projected near 6.5 percent. This is a clear improvement compared to the crisis years when inflation reached between 20 to 38 percent in different periods.

However, despite these macroeconomic improvements, the ground reality remains difficult for ordinary citizens. Millions of Pakistanis continue to face unemployment, rising electricity bills, expensive fuel, shrinking purchasing power, and increasing financial pressure on households.

There is no doubt that fiscal discipline and economic stabilization are necessary. Pakistan cannot afford uncontrolled deficits or repeated balance-of-payment crises. Engagement with the International Monetary Fund (IMF) has helped stabilize external accounts and avoid financial default risks. However, stabilization alone cannot be considered success if its benefits do not reach the common citizen.

The upcoming federal budget must therefore go beyond being merely an IMF-compliant document. It must become an inclusive, people-centered, employment-oriented, growth-driven, business-friendly, and export-focused economic roadmap.

One of the biggest structural weaknesses of Pakistan’s economy is its narrow tax base, with tax-to-GDP ratio around 9 to 10 percent, significantly lower than regional economies. A large informal economy and limited taxpayer base continue to restrict fiscal space.

Alongside tax expansion, the budget must significantly enhance allocations for education and health sectors, as these are the most fundamental public needs and the foundation of human capital development. At present, Pakistan’s education spending remains around 1.7 to 2.0 percent of GDP, while health expenditure is approximately 1.0 to 1.2 percent of GDP, both significantly below regional benchmarks such as South Asia’s average, where education spending is closer to 3 to 4 percent of GDP and health spending is around 2 to 3 percent of GDP.

Pakistan also faces serious human development challenges. Nearly 25 million children are out of school, while literacy levels remain around 60 percent overall, with significantly lower rates in rural and disadvantaged regions. In health, Pakistan’s infant mortality rate remains around 50–60 per 1,000 live births, and maternal health indicators continue to reflect systemic weaknesses in primary healthcare delivery. A large proportion of households still rely on out-of-pocket health expenditure, pushing vulnerable families further into poverty.

Without strong and sustained investment in schools, universities, hospitals, and primary healthcare systems, no meaningful economic transformation is possible. Education builds productivity, reduces inequality, and improves employability, while health ensures a physically and mentally productive workforce. Therefore, increasing budgetary allocation to these sectors is not a social expenditure burden, but a direct investment in Pakistan’s future economic capacity and national competitiveness.

Pakistan’s tax system must shift from burdening the same segments repeatedly to expanding the taxpayer base. Retail, wholesale, real estate, transport, and other untaxed sectors must be brought into the formal system through digital monitoring.
At the same time, the salaried class deserves immediate relief, including inflation-adjusted tax slabs and reduced withholding burdens.

A strong business-friendly environment is also essential, as Pakistan’s business community continues to suffer from bureaucratic delays, red tapism, and inconsistent taxation. Simplified procedures, one-window digital systems, and predictable policies are necessary to restore investor confidence.
Pakistan’s most serious structural challenge is unemployment, especially among youth, with millions entering the labor force annually.

In this context, a clear-cut national youth skill development policy is essential. Youth must be equipped with practical, market-oriented skills enabling self-employment.

Technical training institutes, digital skill centers, and vocational programs must be expanded nationwide. Skill development should align with demand in IT, construction, agriculture services, livestock, freelancing, and technical trades.

To address unemployment, labor-intensive industries, SMEs, and digital economy expansion must be prioritized along with paid internships and employment programs.
A critical area is exports. Pakistan’s exports are around 30 to 35 billion US dollars, while imports are around 55 to 65 billion US dollars, creating a persistent trade deficit of 20 to 30 billion dollars annually. This imbalance is one of the core weaknesses of the economy.

Exporters must be supported through tax incentives, refund system efficiency, reduced production costs, and simplified customs procedures. Without export-led growth, Pakistan will remain dependent on external borrowing.

Agriculture and livestock remain the backbone of the rural economy, contributing nearly 22 to 24 percent to GDP and employing 37 to 40 percent of the workforce. Livestock alone contributes around 60 percent of agricultural value addition, with milk production of nearly 72 million tons annually.

Despite this, investment remains limited. Livestock also acts as a financial safety net for rural households, with Eid-ul-Azha livestock activity estimated at nearly Rs. 1.3 trillion.
Energy sector challenges remain severe, with circular debt around Rs. 2.6 to 3 trillion and transmission losses of 15 to 18 percent, requiring structural reform and renewable energy expansion.

Fiscal discipline is also necessary, as total federal expenditure stands around Rs. 17.57 trillion, while debt servicing alone consumes nearly Rs. 8 trillion. In this context, increasing development spending in education and health must remain a top priority because these sectors determine long-term productivity and human development. Wasteful expenditures must be reduced, and governance reforms must be strengthened.

Pakistan must shift from a consumption-based economy to an export-oriented and productivity-driven economy supported by stable policy and investment confidence.

Climate change is also emerging as a major economic threat affecting agriculture, water availability, and rural livelihoods, requiring climate-resilient planning.

Ultimately, the success of Budget 2026-27 will depend not only on fiscal indicators but on whether it improves the lives of ordinary citizens through education, health, employment, exports, and fair taxation.
Pakistan needs economic discipline, but it equally needs economic justice.

Sustainable stability cannot come from financial compliance alone; it must come from inclusive growth, employment generation, fair taxation, export-led development, skill-based empowerment, and strong investment in human development sectors such as education and health.

Pakistan stands at a defining economic moment where policy choices will determine whether the country moves toward sustainable stability or remains trapped in repeated cycles of adjustment and hardship. The real test of Budget 2026-27 will not be its approval by international institutions, but its acceptance in the homes of ordinary Pakistanis.

Dr Alamdar Hussain Malik
Advisor, Veterinary Sciences, University of Veterinary and Animal Sciences, Swat
Former : Financial Adviser, Finance Division, Government of Pakistan