Budget overlooks critical structural reforms

ISLAMABAD: Nearly a month after the FY2026-27 federal budget, two economists said Pakistan has achieved short-term macroeconomic stability but still faces the more difficult task of carrying out structural reforms needed to sustain growth, draw investment and improve investor confidence.

Sustainable Development Policy Institute Deputy Executive Director and Policy Solutions Lab founding head Dr Sajid Amin Javed and former Pakistan Institute of Development Economics economist Dr Afia Malik said the budget largely meets Pakistan's fiscal consolidation commitments under the International Monetary Fund programme, but offers limited movement on deeper reforms required to put the economy on a stronger and more durable growth path. They said the coming six to 12 months would be critical in showing whether the government can convert stabilisation into investment-led expansion.

Javed said the budget provided immediate relief to some sectors but did not do enough on structural change. He said the government's priority should be to widen the tax base beyond salaried individuals by bringing retail, wholesale and agriculture into the tax net, adding that investor confidence would depend largely on whether such measures are implemented consistently.

"The budget bought much-needed short-term breathing room for some sectors but did not offer much on structural reforms"

Malik described the FY27 budget as another stabilisation budget, similar to the previous one, saying it preserves fiscal discipline and supports Pakistan's IMF commitments. At the same time, she said it shows only limited ambition in advancing productivity, competitiveness and investment-led growth.

Reform agenda beyond the budget

Malik said the government now needs an aggressive implementation plan centred on reforms in taxation, energy, exports, state-owned enterprises and the broader investment climate. She said delivery in these areas would strengthen economic resilience, create employment, improve competitiveness and make the country more appealing for both local and foreign investors.

Both economists said the next stage of recovery must be driven by private investment rather than public expenditure. Malik said the budget contains few substantial steps to attract large-scale domestic or foreign investment. In her view, investors require a predictable exchange rate, stable fiscal policies and a simpler tax regime that is not subject to frequent policy shifts.

She also called for institutional reform through simpler regulations, stronger contract enforcement, better dispute resolution and wider digital public services, instead of relying mainly on tax incentives. Malik said transparent procurement, policy consistency and improved governance would contribute more to investor confidence than temporary incentives.

Taxation and expenditure concerns

On taxation, both economists said the budget missed an opportunity for meaningful reform. Javed said the FY27 budget could still have been framed differently within IMF constraints by pairing fiscal consolidation with structural measures aimed at raising exports, attracting foreign direct investment and encouraging private investment.

He estimated that widening the tax base through a strong digital tax regime for retailers and wholesalers, documenting the informal economy, taxing all income on an equal basis and imposing higher taxes on tobacco, sugary drinks, luxury real estate and unutilised urban land could bring in an additional Rs400-500 billion each year.

Malik said Pakistan's tax structure remains too complex, distortionary and unpredictable, and urged a simpler system with fewer taxes, lower rates and equal treatment of all income sources. She added that the budget concentrates on raising revenue while giving insufficient attention to expenditure reform, including rightsizing government and improving the efficiency of the Public Sector Development Programme.

Energy, exports and SOE reforms

The two economists also stressed the need for urgent reform in the energy sector. Malik said durable solutions would require better transmission infrastructure, reforms in distribution companies and the creation of a competitive electricity market. She also called for transparent privatisation of loss-making state-owned enterprises.

To support long-term growth, Malik said Pakistan should improve export competitiveness by ensuring reliable and affordable energy, improving trade logistics and streamlining customs procedures. She further advocated financial sector reforms to deepen capital markets, widen financing for small and medium-sized enterprises and encourage long-term investment.

Both economists said Pakistan's recovery will depend on sustained implementation rather than policy announcements alone. Malik said reform fatigue remains the country's biggest risk, while Javed said lasting investor confidence would rest on the steady execution of tax and investment reforms needed to achieve durable, investment-led growth.