Economic survey FY26: some reflections

No movement on climate change

The government recently released ‘Pakistan Economic Survey 2025-26,’ which is an annual publication surveying major economic happenings of the fiscal year, in terms of macroeconomic indicators, and government economic initiatives, and is released before the federal budget.

Two comments upfront: First, Pakistan is among the top-ten most challenged country in terms of climate change, and the ongoing fiscal year saw catastrophic flooding in the country during the monsoon season, which are also the first few months of the ongoing fiscal year, and it is quite shocking that the chapter on climate change is the last chapter of the Survey, behind two annexures ‘contingent liabilities,’ and ‘Tax expenditure 2026,’ and the section ‘Economic and social indicators.’ 

Even in the chapter, there is no mention of climate finance, which is strange given Pakistan suffered from significant level of flooding during summers of 2025, and also has significant climate finance needs given the resilience enhancing needs, including improving water related resilience against higher temperatures, including its negative impact on the pace of melting of glaciers. Also, the current year is reportedly starting to witness ‘El Niño’, about which the chapter has no mention! Highlighting about ‘El Niño’ a June 11, BBC-published article ‘What is El Niño and why could it mean record temperatures?’ pointed out ‘A natural weather pattern called El Niño- which could bring extreme weather to many parts of the world- has begun, US scientists say. The National Oceanic and Atmospheric Administration (NOAA) said that El Niño conditions are likely to strengthen over the rest of 2026. Many forecasts suggest it could be one of the strongest El Niños ever recorded. Coming on top of decades of human-caused warming, 2027 may be the hottest year on record, with disruption to weather, food supplies and economies.’ Moreover, it is strange that the Survey has no concerns about the financial envelope of the IMF’s ‘Resilience and Sustainability Facility’ (RSF) programme, which only provides around US$1.4 billion– or SDR 1 billion to be precise– over around two years of programme duration. 

A deeper analysis perhaps would indicate the misgiving of pursuing a lopsided policy of mainly squeezing aggregate demand, through implementing over-board monetary, and fiscal austerity policies. Hence, lack of needed focus on aggregate supply enhancing factors has not allowed reaching a sustainable situation of macroeconomic stability, and economic growth, where the latter over the medium-term has seen a significantly sub-optimal growth performance; likely causing in turn rise in unemployment, and sharp increase in poverty

Secondly, there is a very weak analysis depicting level of resilience, where the main indicator is taken as trade tariffs shock from USA during early 2025, which although quite deep yet, in the broader scheme of things, in a world affected by ‘polycrisis’ it is just one of a number of factors, like the existential threat of climate change crisis, and elevated level of conflict in the shape of for instance, Ukraine War, and the recent Middle East conflict. Hence, to indicate in the opening paragraph of the chapter of the Survey ‘Overview of the economy’ that ‘The global economy showed resilience in 2025 despite heightened trade tensions and persistent policy uncertainty’ and then in the second paragraph indicate that ‘However, the global outlook weakened in early 2026 following the outbreak of conflict in the Middle East. Disruptions in energy supply routes and damage to critical production facilities increased uncertainty in global energy markets and added downside risks to growth. At the same time, renewed trade tensions, elevated public debt, and concerns regarding slowing productivity growth continued to weigh on the global economic outlook’. 

This is more of an example of a weak level of preparedness of the global economy, in terms of resilience against shock, especially for developing countries like Pakistan, whereby one conflict was able to significantly impact countries in general, which is an example of lack of resilience in the global economy, which has not seen much buidt-up in a mission-oriented way, even though serious cracks were witnessed in this regard when the covid-19 pandemic hit. 

Moreover, the economic survey needs to understand that the country is stuck in a low growth equilibrium, and even an increase in growth from 3.18 percent, to estimated 3.7 percent, does not indicate a breakaway situation, given the medium-term growth ranges between two to four percent. The Survey needs to be more analytical than indicating this marginal increase, and citing its sources, which is more of an accounting exercise, than understanding the seriousness of sustainability providing that the economic policy being pursued is in the shape of being basically neoliberal, austerity, and procyclical base policy. 

Here, to provide informed input to policy to reflect on a lack of policy impact on bringing sustainability to stability, and growth, the Survey could have provided a special policy section, in the shape of making a counter-factual analysis, in turn, instead of employing pro-cyclical policy response, the country employing a counter-cyclical policy, and seeing impact on macroeconomic stability, and growth. More specifically, seeing the impact of lowering policy rate, and tax rates, including impact on fiscal space due to lower interest payments, better fiscal federalism related expenditure, and tax rationalization, applying deep administrative controls on imports, and non-development expenditures, and enhancing tax base in a substantive way, including employing creative taxation like applying windfall tax.

A deeper analysis perhaps would indicate the misgiving of pursuing a lopsided policy of mainly squeezing aggregate demand, through implementing over-board monetary, and fiscal austerity policies. Hence, lack of needed focus on aggregate supply enhancing factors has not allowed reaching a sustainable situation of macroeconomic stability, and economic growth, where the latter over the medium-term has seen a significantly sub-optimal growth performance; likely causing in turn rise in unemployment, and sharp increase in poverty. 

It needs to be indicated here that even after taking a highly conservative level of poverty line by the government, around one third of the population is below it as per official statistics; while as per poverty line level (at $4.20 per day basis) indicated by World Bank, around 45 percent of the population is below the poverty line. The ‘Poverty & equity brief’ published by World Bank in October 2025, indicated about Pakistan in this regard ‘The poverty rate, measured at the new LMIC [low- and middle-income country] international poverty line threshold, is estimated to have decreased to 45.0 percent in FY25 ($4.20/day 2021 PPP) from 47.1 percent in the previous year.’ Here, it needs to be understood that Pakistan belongs to the lower middle-income group of countries, and for that the poverty line as per World Bank should be at $4.20, or around Rs 1,167 per day, which means on a monthly basis it stands at $126, or around Rs 35,000. 

In its ‘Poverty and equity brief’ the World Bank indicated in this regard ‘Poverty rates and total number of poor as measured by the national poverty line and for the international extreme poverty line ($3.00 in 2021 PPP terms), as well as the lower-middle-income ($4.20) and upper-middle-income ($8.30) poverty lines.’ Having said that, the reported official poverty line is being taken at Rs 8,483 per month, or Rs 282.8 per day!