Experts warn fiscal policy remains crisis-driven and call for stronger investment in resilience, social protection and green growth.
ISLAMABAD: Pakistan’s fiscal framework continues to prioritise short-term crisis management instead of addressing structural weaknesses that deepen poverty, inequality and climate vulnerability, according to experts from the Sustainable Development Policy Institute (SDPI).
Presenting pre-budget recommendations ahead of the federal budget 2026-27, SDPI researchers urged policymakers to move away from reactive stabilisation policies and instead adopt a long-term development approach centred on human capital, climate resilience and productive investment.
They argued that the country’s economic planning must be reoriented to address recurring shocks, including floods, droughts and heatwaves, which continue to place pressure on public finances and development outcomes.
‘Resilience, not just fiscal stability’ needed
SDPI Deputy Executive Director (Policy), Dr Shafqat Munir Ahmad, said Pakistan is facing not only a fiscal challenge but also a broader resilience crisis.
He called for increased and sustained allocations for education, health, nutrition and social protection programmes, alongside significantly higher investment in climate adaptation and disaster preparedness.
“The country cannot continue financing recovery after every flood, drought and heatwave while underinvesting in prevention, preparedness, anticipatory action and human development,” he said.
Dr Ahmad stressed that budget performance should not only be measured through fiscal indicators but also through its impact on poverty reduction, resilience building and the protection of development gains.
He further urged greater public investment in employment-generating sectors, particularly agriculture, small and medium enterprises (SMEs), and emerging green economy opportunities. Social spending, he added, should be viewed as a long-term investment in productivity rather than a fiscal burden.
Calls for tax base expansion and fairness
On taxation, SDPI Deputy Executive Director (Research), Dr Sajid Amin Javed, cautioned against increasing the burden on salaried and documented taxpayers.
He noted that a disproportionate share of direct tax revenue is currently collected from formal sector employees, while large segments of the economy remain outside the tax net.
Dr Javed recommended that budget reforms focus on broadening the tax base and improving economic productivity rather than relying on measures that primarily affect middle-income households.
He also supported ongoing tariff rationalisation efforts, stating that reducing distortions in the tariff structure could improve industrial competitiveness, attract investment and support export-led growth.
“Pakistan needs structural reforms instead of annual revenue-driven adjustments,” he said, warning that excessive reliance on indirect taxation weakens purchasing power and slows economic activity.
Budget as a development strategy
SDPI Research Fellow Dr Khalid Waleed emphasised that the federal budget should be treated as a roadmap for economic transformation rather than a simple exercise in balancing revenues and expenditures.
“A budget is not meant to be a calculator with a flag on it; it is meant to be a development strategy expressed in rupees,” he said.
He called for fiscal policy to prioritise job creation, productive investment and human capital development, while ensuring that climate budget tagging translates into meaningful spending decisions rather than becoming a procedural formality.
Dr Waleed also urged policymakers to integrate climate risks into all major fiscal and development planning decisions, including public sector investment frameworks.
Climate finance and circular economy proposals
Zainab Naeem, Head of Ecological Sustainability and Circular Economy at SDPI, proposed allocating at least 50% of revenues from the Climate Support Levy and 20% of Carbon Levy proceeds to a dedicated Climate Fund.
She said such a fund should be used to finance climate adaptation, mitigation, disaster preparedness and urban resilience initiatives.
Naeem also highlighted Pakistan’s growing waste challenge, noting that the country generates nearly 50 million tonnes of waste annually. She recommended treating waste as an economic resource through targeted fiscal incentives for recycling industries, which could help generate green jobs and boost economic activity.
She further proposed mandatory climate-risk screening for all Public Sector Development Programme (PSDP) projects exceeding Rs7.5 billion before approval. According to her, this approach aligns with climate budget tagging reforms and commitments under the International Monetary Fund’s Resilience and Sustainability Facility.
Outlook
SDPI’s recommendations underline growing calls from policy experts for Pakistan to shift from short-term fiscal stabilisation towards a more comprehensive development strategy. As the government prepares the federal budget 2026-27, the proposals highlight the increasing emphasis on climate resilience, inclusive growth and structural tax reform as key pillars for long-term economic sustainability.
