Budget lacks medium-term brain, power relief, tax equity: Experts

KU AERC seminar says Budget 2026-27 focuses on numbers, not on export competitiveness, tax equity, or long-term planning

IV Report

KARACHI: The University of Karachi’s Applied Economics Research Centre (AERC) concluded that Budget 2026-27 is missing key structural links to growth, energy affordability, and tax reform, during its Budget Insight 2026-27 seminar held Monday.

Speakers said the budget reads as an annual accounts statement, without the medium-term policy backbone needed to address Pakistan’s core economic constraints.

Former State Bank of Pakistan Governor Dr Ishrat Husain said a budget must operate within a medium-term policy framework, not as merely an account of income and expenditure.

Citing the 2010-11 NFC Award, he noted it had set a target to raise the tax-to-GDP ratio to 15% within five years. Fifteen years later, it remains around 11 percent, he said, adding that setting targets alone is insufficient without practical measures and continuous monitoring.

Dr Husain also flagged the lack of post-approval review. He recommended activating the National Economic Council with quarterly meetings, digital tracking of goals, and faster corrective action to cut delays that cost billions of dollars in development projects.

Former Federal Finance Minister Dr Miftah Ismail identified expensive electricity relative to regional competitors as the biggest barrier to export growth. He said tariffs must fall to levels comparable with India, Bangladesh, and others, or exports cannot grow substantially.

He contrasted Pakistan’s exports of about US$30 billion with Vietnam’s US$400 billion, noting both had similar export levels in 1990.

Dr Ismail also termed the petroleum levy a highly regressive tax that hits low-income groups hardest. He said 50-60% of petrol is consumed by motorcyclists who pay nearly Rs 100 per litre in taxes and levies.

On fiscal federalism, he questioned the NFC’s effectiveness if provinces do not devolve resources to local governments. If provinces do not devolve resources and powers to local governments, then centralisation at one level may prove more effective than monopolies at four different levels, he said.

Budget choices

Speakers tied budget priorities to social outcomes. Dr Ismail said real incomes have declined over the last four years, literacy has deteriorated post-2010, and malnutrition remains high. In Sindh, he noted, nearly 60% of 10-year-olds in grade five cannot read grade-two texts.

KU Vice Chancellor Prof Dr Khalid Mahmood Iraqi said education must be treated as an investment, not an expense. He also criticised the population-based NFC formula for indirectly encouraging population growth when resources are already constrained.

Dr Husain added that weak linkages between education, science, IT, and industry have fueled graduate unemployment.

AERC Director Prof Dr Nooreen Mujahid said the seminar aimed to critically analyse policies on growth, inflation, unemployment, higher education, and long-term development. Academic input is vital for effective policymaking and sustainable economic progress, she said.

Dr Muhammad Sabir of the Social Policy and Development Centre presented a detailed analysis of Budget 2026-27 during the session. KU Dean of Arts and Social Sciences Prof Dr Samina Saeed, and Dr Amir Hussain of AERC also addressed the seminar.

Photos courtesy: KU