The News: A Budget That Skips the Majority

The recent budget unveiled in Pakistan has, predictably, monopolized national conversations. Much of the commentary has focused on the perceived generosity towards the business community, exporters, and the salaried class, particularly the promise of a 10 to 15 percent tax relief. This relief, targeting individuals earning upwards of Rs200,000 monthly, has been presented as a boon for “common Pakistanis.” However, a closer examination of socio-economic data reveals a significant oversight: the vast majority of the population remains outside the direct ambit of these benefits.

According to last year’s Household Integrated Economic Survey (HIES), a staggering 80 percent of Pakistani households operate on a monthly expenditure of less than Rs100,000. It’s crucial to note that this figure accounts for entire households, which often comprise multiple income earners, not just a single salaried employee. Moreover, while there is no direct income tax for salaried individuals or farmers earning below Rs50,000 monthly, covering a significant portion of the rural populace and 95 percent of farmers, the prevailing discourse largely overlooks the economic realities of these groups. This discrepancy begs a fundamental question: what tangible support does this budget offer to the overwhelming majority of Pakistanis?

Background: Pakistan’s Economic Realities and Fiscal Strains

To fully appreciate the budget’s implications, one must understand the intricate tapestry of Pakistan’s economic landscape. The nation is characterized by a predominantly informal economy, entrenched income disparities, and a large agrarian population often grappling with vulnerability and limited access to resources. The government’s capacity for public investment is severely curtailed by a heavy national debt burden and an inadequate domestic revenue base.

The Structure of Pakistan’s Workforce and Income

• A Skewed Distribution: The HIES data clearly indicates that the much-celebrated tax relief targets a relatively affluent segment, bypassing the majority who live on far less. This highlights the deep income inequality embedded within the Pakistani economy.
• Rural Economy’s Backbone: A substantial portion of Pakistan’s workforce, approximately one-third, earns its livelihood from agriculture, primarily in rural areas. Despite their critical contribution, these farmers often face precarious incomes, with most earning below the taxable threshold and lacking adequate support systems.
• Low-Skill Dominance: The labor market is heavily skewed towards low-skill or no-skill occupations. Nearly 40 percent of the national labor force is illiterate, and over 80 percent are engaged in sectors like construction, transport, trade, and services. While minimum wage provisions exist, their enforcement remains a significant challenge, leaving many workers vulnerable to exploitation.

Fiscal Challenges and Debt Servicing

Pakistan’s public finance health is a persistent concern. The country’s total revenue collection, including contributions from provincial governments, hovers around 11 percent of GDP. A substantial portion of this, over 5 percent of GDP, is immediately earmarked for debt servicing. This leaves minimal fiscal space for critical investments in human development and infrastructure, constraining the government’s ability to address societal needs effectively.

“To grow adequately, a developing country needs to collect about 20pc of its GDP in revenues. That is when investment to build schools, train teachers and provide school meals is possible.”

This observation underscores a core systemic issue: without a significant enhancement in its revenue-generating capacity, Pakistan will continue to struggle with underfunding essential public services, trapping it in a cycle of limited development and persistent challenges.

Impact on Pakistan: A Sectoral Analysis of Budgetary Allocations

Social Safety Nets: A Crucial but Limited Lifeline

For the nation’s most vulnerable, the budget proposes a considerable allocation of Rs838 billion for the Benazir Income Support Programme (BISP). This will increase the quarterly payout to Rs18,000 for roughly 10 million families, constituting the bottom 25 percent of Pakistani households. This enhanced support, triple the pre-COVID payout, is a vital measure to mitigate the severe impact of post-COVID inflation, projected to boost these families’ monthly expenditure by about 10 percent. While indispensable for alleviating extreme poverty, BISP’s reach, by design, remains confined to a specific segment, leaving a large portion of the struggling population without direct support.

Education and Health: Persistent Underfunding and Quality Gaps

Despite significant provincial allocations—Punjab earmarking Rs750 billion for education and Rs500 billion for health; Sindh Rs551 billion for education and Rs354 billion for health; and Khyber Pakhtunkhwa Rs398 billion for education and Rs335 billion for health—the collective national spending on these critical sectors remains alarmingly low. The total education budget, for instance, barely reaches 1.5 percent of GDP, far below the 4 percent benchmark recommended for developing countries by international bodies like the IMF.

• Human Capital Crisis: This underinvestment directly impacts human capital development. The Annual Status of Education Report (ASER) 2025 painted a stark picture, revealing that half of Class 5 students in Pakistan cannot comprehend basic written text or math intended for Class 2.
• Outsourcing Trends: The growing reliance on outsourcing public schools and health centers in provinces like Punjab and Sindh, while often presented as an efficiency measure, raises questions about equitable access, regulatory oversight, and the long-term impact on service quality for the general populace.
• Nutrition and Welfare: Although Punjab has initiated a school meals program providing nutrition-dense milk (not full meals) for one million early childhood and primary students with a Rs7 billion allocation, its scope is limited. This misses a significant opportunity to link agricultural procurement with child nutrition, a model successfully employed in many countries to support both farmers and students.

Agriculture: Neglecting the Foundation

Pakistan’s agricultural sector, a cornerstone of its economy and employer of a vast rural workforce, receives meager direct support. The federal budget allocates a mere Rs1 billion for covering crop insurance premiums for small farmers, a sum sufficient for only a tiny fraction of those in need. While provincial and federal schemes exist to facilitate bank credit, the critical distinction lies in the mark-up: Punjab will absorb it for small farmer loans, whereas the federal government will not. This fragmented and insufficient support leaves farmers vulnerable to climate change impacts and volatile market conditions.

The Power Sector: A Costly Subsidy Dilemma

An allocation of Rs830 billion to the power sector, strikingly similar in magnitude to the BISP budget, underscores the chronic issues within Pakistan’s energy infrastructure. Despite being presented as a means of support, these funds primarily function as a prop for the power sector’s businesses, struggling with high fixed costs and circular debt. The benefits rarely translate into tangible relief for poor electricity consumers, who continue to face soaring tariffs, as these subsidies largely maintain the status quo of an inefficient system.

Indirect Taxation: Burden on the Common Citizen

The budget maintains petroleum levy collection targets at levels similar to the previous year, implying sustained consumption of transport fuels. Crucially, with motorcycles accounting for approximately 40 percent of Pakistan’s transport fuel consumption, a substantial portion of this levy will continue to be borne by the lower-middle class – clerks, laborers, and farmers – who rely on this mode of transport. This indirect tax disproportionately impacts those with limited disposable income, effectively eroding any minor relief they might receive elsewhere.

A Glimmer for Women

A notable direct positive step in this budget is the removal of the 18 percent sales tax on sanitary pads. While seemingly a small measure in the grand scheme of the national budget, this decision is a significant win for Pakistan’s women and girls, addressing a long-standing issue of menstrual hygiene accessibility and affordability.

Analysis: The ‘Wait For It’ Approach to National Prosperity

The Pakistani budget, in its overarching philosophy, largely adheres to a ‘trickle-down’ economic model, aptly summarized as the “wait for it” budget. Its core strategy prioritizes stimulating economic activity through incentives for businesses, exporters, and the relatively affluent salaried class, operating on the premise that the resultant growth will eventually permeate all strata of society. Beyond direct support for the most vulnerable through BISP and the specific relief on sanitary pads, most ordinary Pakistanis are positioned as secondary beneficiaries, expected to ‘wait’ for the positive effects of facilitated manufacturing and construction sectors to reach their households.

A Widening Gap or Stagnation for the Majority?

This budgetary approach creates a clear divide: direct benefits accrue to the top 20% (salaried tax relief) and the bottom 25% (BISP payouts). The vast segment in between—the farmers, daily wage earners, informal sector workers, and lower-middle-class households that constitute the majority—finds little in the way of direct, impactful relief or investment. Such a model risks exacerbating existing inequalities, as the benefits of trickle-down economics are often slow, unevenly distributed, and frequently fail to reach the intended wider population without strong regulatory frameworks and complementary social policies.

The stark discrepancy between celebrating tax cuts for high-income earners and the minimal direct support for the 80% of households struggling with basic expenditures highlights a fundamental misalignment of national priorities. Sustainable, inclusive development cannot be achieved if the foundational sectors and majority population are relegated to secondary beneficiaries, waiting for indirect impacts.

The Urgent Need for Comprehensive Fiscal Reform

The analysis unequivocally points to Pakistan’s enduring fiscal challenges. A revenue-to-GDP ratio of just 11% is simply insufficient to fund essential public services after accounting for massive debt servicing obligations. Genuine progress necessitates bold and comprehensive tax reforms to broaden the tax base, ensure equitable contributions across all income groups, and reduce the regressive reliance on indirect taxes like the petroleum levy, which disproportionately burden the poor. Achieving a revenue collection closer to 20% of GDP is crucial to unlock the fiscal space needed for vital public investments.

Furthermore, the efficacy of large-scale subsidies, particularly in the power sector, demands critical re-evaluation. If hundreds of billions are allocated primarily to sustain inefficient systems rather than providing direct, measurable relief to consumers, their economic and social utility is questionable. Rechanneling such funds towards targeted social protection, human capital development, or productive infrastructure could yield far greater returns for the nation.

Investing in Human Capital: The Undeniable Imperative

The persistent underfunding and critical quality gaps in education and health sectors represent a significant bottleneck to Pakistan’s long-term prosperity. A nation cannot aspire to compete globally or alleviate poverty effectively if a substantial portion of its children are not acquiring basic literacy and numeracy skills. Prioritizing robust public education, continuous teacher training, comprehensive school meal programs, and universal access to quality healthcare are not merely expenditures; they are foundational investments that empower citizens, foster innovation, and lay the groundwork for intergenerational mobility and sustainable economic growth.

In essence, while the budget aims to navigate Pakistan’s complex economic landscape, its reliance on a “wait for it” approach risks leaving a substantial portion of its population behind. A truly transformative budget would necessitate a more equitable distribution of benefits, aggressive revenue mobilization, and direct, strategic investments in human capital, thereby fostering an inclusive growth trajectory that genuinely uplifts the vast majority of Pakistani citizens.