The Policy Research and Advisory Council (PRAC) has acknowledged several positive measures in the Federal Budget for 2025-26, but has raised significant concerns about the budget’s failure to address critical challenges, particularly in the industrial sector which could increase unemployment and destabilize Pakistan’s already fragile economic outlook.
PRAC Chairman, Mohammad Younus Dagha, acknowledged the budget’s forward-thinking initiatives, including the Green Sukuk, which signals a positive shift toward sustainability and reflects the government’s commitment to environmental concerns. He also welcomed the tax relief for salaried individuals, noting it would offer financial relief to the broader population. However, he pointed out that the lack of an increase in the minimum tax threshold may not sufficiently ease the burden on the most vulnerable and heavily taxed segments. Additionally, the reduction of withholding taxes on property transactions by 1.5% across all tax brackets and the removal of the 7% Federal Excise Duty (FED) on property transfers are expected to stimulate the real estate and construction sectors.
Despite these strides, PRAC expressed concerns regarding the budget’s failure to address Pakistan’s pressing economic challenges. The most significant issue raised was the budget’s reliance on unrealistic revenue targets and growth projections, which Mr. Dagha described as “disconnected from economic realities.” He emphasised that the ambitious projections ignore the prevailing macroeconomic constraints, which could lead to unachievable expectations and exacerbate the nation’s fiscal challenges.
The budget also raised alarm over the country’s fiscal health, particularly with regard to debt servicing, which is projected to consume 50.4% of the current expenditure and 74.1% of net federal revenues in FY26. This severely limits the resources available for developmental spending. The Federal Public Sector Development Program (PSDP) has been reduced by 29%, from PKR 1,400 billion to PKR 1,000 billion for the upcoming fiscal year. This cut in development spending will undermine crucial initiatives, slow job creation, and hinder long-term economic growth.
“By slashing development spending, the government risks undermining long-term economic progress and stability,” stated Mr. Dagha. “The reduction in PSDP funding directly contradicts the need for investment in infrastructure, education, and healthcare.”
PRAC also expressed concern over the lack of targeted support for the industrial sector, which has experienced a 1.5% decline during the first nine months of FY2025. Furthermore, despite the widening trade deficit in services, the budget failed to announce special incentives for Pakistan’s thriving IT sector, missing an opportunity to leverage its potential for economic growth. Similarly, no export-oriented growth measures were introduced, a critical oversight in boosting foreign exchange earnings and strengthening the country’s economic stability.
Additionally, Mr. Dagha highlighted the insufficient allocation for Karachi, which now ranks as the fifth least livable city globally. With only PKR 3.2 billion allocated for the K-IV water supply project, a vital initiative to address the city’s ongoing water crisis, the budget allocation is deemed inadequate. Moreover, several key projects under the Karachi Transformation Plan, announced in 2020, remain largely unaddressed.
“This was a rare opportunity to implement transformative reforms in critical areas such as education, healthcare, and infrastructure,” said Mr. Dagha. “Regrettably, the budget largely missed the chance to enact meaningful reforms in these vital sectors.”
PRAC urges the government to reconsider the current budget and introduce measures that can effectively address the economic realities of Pakistan. There is an urgent need for a more balanced approach that focuses on sustainable growth, fiscal responsibility, and targeted support for key sectors such as industry, technology, and social welfare.