‘Disconnected from economic realities': think tank says budget could increase unemployment

Business Recorder

2 days ago

The budget has failed to address critical challenges, particularly in the industrial sector which could increase unemployment and destabilize Pakistan's already fragile economic outlook, according to the Policy Research and Advisory Council (PRAC).
In a statement published on Tuesday, PRAC Chairman Mohammad Younus Dagha acknowledged the budget's forward-thinking initiatives, including the Green Sukuk, which he said signals a positive shift toward sustainability and reflects the government's commitment to environmental concerns.
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He lauded the reduction of withholding taxes on property transactions by 1.5% across all tax brackets and the removal of the 7% Federal Excise Duty on property transfers as this is expected to stimulate the real estate and construction sectors.
He also welcomed the tax relief for salaried individuals.
However, he said the lack of an increase in the minimum tax threshold may not sufficiently ease the burden on the most vulnerable and heavily taxed segments.
Moreover, he said the budget is relying on unrealistic revenue targets and growth projections, and is 'disconnected from economic realities.'
He emphasized that the ambitious projections ignore prevailing macroeconomic constraints, which could lead to 'unachievable expectations and exacerbate the nation's fiscal challenges.'
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He added that the budget also raised alarm over the country's fiscal health, particularly with regard to debt servicing, which is projected to consume 50.4% of the current expenditure and 74.1% of net federal revenues in FY26.
'This severely limits the resources available for developmental spending,' it said. It said the Federal Public Sector Development Program's reduction by 29%, from PKR 1,400 billion to PKR 1,000 billion for the upcoming fiscal year, 'will undermine crucial initiatives, slow job creation, and hinder long-term economic growth.'
'By slashing development spending, the government risks undermining long-term economic progress and stability,' said Dagha.
'The reduction in PSDP funding directly contradicts the need for investment in infrastructure, education, and healthcare.'
PRAC also expressed concern over the lack of targeted support for the industrial sector, which it said has experienced a 1.5% decline during the first nine months of FY2025.
Moreover, it said despite the widening trade deficit in services, the budget has failed to announce special incentives for Pakistan's thriving IT sector, missing an opportunity to leverage its potential for economic growth.
Similarly, no export-oriented growth measures were introduced, 'a critical oversight in boosting foreign exchange earnings and strengthening the country's economic stability.'
Meanwhile Dagha highlighted the insufficient allocation for Karachi, which now ranks as the fifth least livable city globally.
'With only PKR 3.2 billion allocated for the K-IV water supply project, a vital initiative to address the city's ongoing water crisis, the budget allocation is deemed inadequate,' the statement said, adding that several key projects under the Karachi Transformation Plan, announced in 2020, remain largely unaddressed.
'This was a rare opportunity to implement transformative reforms in critical areas such as education, healthcare, and infrastructure,' said Dagha. 'Regrettably, the budget largely missed the chance to enact meaningful reforms in these vital sectors.'
PRAC has urged the government to reconsider the budget and introduce measures that can effectively address the economic realities of Pakistan.
'There is an urgent need for a more balanced approach that focuses on sustainable growth, fiscal responsibility, and targeted support for key sectors such as industry, technology, and social welfare,' it said.