Budget fails on structural issues
Nearly a month after the FY2026-27 federal budget, Pakistan's leading economists say the country has secured short-term macroeconomic stability, but the real challenge now lies in implementing long-delayed structural reforms that can sustain growth, attract investment and strengthen investor confidence.
Deputy Executive Director and founding head of Policy Solutions Lab at the Sustainable Development Policy Institute (SDPI) Dr Sajid Amin Javed and former economist at the Pakistan Institute of Development Economics (PIDE) Dr Afia Malik agreed during a discussion with The Express Tribune that while the budget has largely fulfilled the country's fiscal consolidation commitments under the International Monetary Fund (IMF) programme, it offers limited progress on deeper reforms needed to place the economy on a higher and more sustainable growth path. They stressed that the next six to 12 months will be crucial in determining whether the government can translate stabilisation into investment-led economic expansion.
"The budget bought much-needed short-term breathing room for some sectors but did not offer much on structural reforms," Javed said, arguing that the government's immediate priority should be broadening the tax base beyond salaried employees by bringing the retail, wholesale and agriculture sectors into the tax net. Investor confidence, he said, would largely depend on whether these reforms are implemented consistently.
Malik described the FY27 budget as another "stabilisation budget," similar to the previous one, saying it effectively maintains fiscal discipline and supports Pakistan's commitments to the IMF. However, she said it shows only modest ambition to promote productivity, competitiveness and investment-driven growth.
According to Malik, the government must now complement the budget with an aggressive implementation agenda focused on reforms in taxation, energy, exports, state-owned enterprises (SOEs) and the overall investment climate. Delivering on these reforms, she said, would improve economic resilience, create jobs, enhance competitiveness and make Pakistan more attractive to both domestic and foreign investors.
Both economists emphasised that Pakistan's next phase of economic recovery must be led by private investment rather than public spending.
Malik noted that the budget introduced few meaningful measures to attract large-scale domestic or foreign investment. Investors, she argued, need a predictable exchange rate, stable fiscal policies and a simplified tax regime free from frequent policy changes. She said Pakistan should prioritise institutional reforms by simplifying regulations, strengthening contract enforcement, improving dispute resolution mechanisms and expanding digital public services instead of relying mainly on tax incentives.
She added that transparent procurement systems, policy consistency and better governance would do more to build investor confidence than temporary incentives.
On taxation, both economists argued that the budget missed an opportunity to undertake meaningful reforms.
Javed said the FY27 budget could have been designed differently even within the constraints of the IMF programme by combining fiscal consolidation with structural reforms aimed at boosting exports, attracting foreign direct investment and encouraging private investment. He estimated that broadening the tax base through a robust digital tax regime for retailers and wholesalers, documenting the informal economy, taxing all income equally and imposing higher taxes on tobacco, sugary beverages, luxury real estate and unutilised urban land could generate an additional Rs400-500 billion annually.
Malik criticised Pakistan's tax structure as overly complicated, distortionary and unpredictable, urging a simpler system with fewer taxes, lower rates and equal treatment of all income sources. She said the budget focused on revenue generation while neglecting expenditure reforms, including rightsising the government and improving Public Sector Development Programme (PSDP) efficiency.
The economists also stressed urgent energy sector reforms. Malik said lasting solutions require improving transmission infrastructure, reforming distribution companies and creating a competitive electricity market. She also called for transparent privatisation of loss-making state-owned enterprises and measures to boost export competitiveness, deepen capital markets and expand financing for small and medium-sized enterprises.
To support long-term growth, Malik said Pakistan must improve export competitiveness through reliable and affordable energy supplies, better trade logistics and streamlined customs procedures. She also advocated financial sector reforms to deepen capital markets, expand financing for small and medium-sized enterprises and encourage long-term investment.
Both economists cautioned that Pakistan's economic recovery hinges on sustained reforms rather than policy announcements. Malik warned that reform fatigue remains the country's biggest risk, while Javed said investor confidence will depend on consistent implementation of tax and investment reforms to achieve durable, investment-led growth.