When American and Israeli warplanes struck Iran on February 28, 2026, killing Supreme Leader Ali Khamenei in the opening hours of the campaign, Washington framed the operation as an urgent act of nuclear non-proliferation.

The objective appeared straightforward: prevent Iran from becoming a nuclear weapons state.

Five months later, that justification has largely disappeared.

Instead, the conflict has evolved through successive phases — from a campaign against Iran’s nuclear programme to a military effort to reopen the Strait of Hormuz — and is now increasingly about preserving American credibility after both objectives proved more elusive than expected.

When the mission shifted

Iran’s response changed the character of the war almost immediately.

Rather than escalating solely through missile exchanges, Tehran closed the Strait of Hormuz, allowing only approved vessels to pass while targeting ships that ignored its restrictions.

Overnight, the conflict ceased to revolve primarily around uranium enrichment.

It became a struggle over one of the world’s most strategically important waterways.

By March, Washington’s military priorities had shifted accordingly.

US Central Command launched operations aimed at reopening the strait, while in April it imposed a naval blockade on Iranian ports.

President Donald Trump appealed to NATO and China to help secure maritime traffic. Neither agreed.

Perhaps the most revealing moment came when Trump remarked that the United States “did not need the oil” flowing through Hormuz.

Whether rhetorical or not, the comment acknowledged what events had already demonstrated: Washington was no longer fighting primarily over centrifuges.

The credibility deficit

Today, Washington’s stated objective has shifted again.

With the June ceasefire already under strain and Iran continuing to attack commercial vessels outside its designated shipping corridor, Washington now threatens to destroy Iranian infrastructure for every merchant ship targeted.

International law experts have warned that publicly threatening retaliation against civilian infrastructure would raise serious legal concerns.

Secretary of State Marco Rubio’s remarks in Manila this week reinforced the evolution in Washington’s narrative.

His warning that no country should be allowed to charge tolls or attack shipping in international waters was less about nuclear proliferation than about preserving a long-standing principle: freedom of navigation.

That principle matters enormously.

Yet it also exposes an uncomfortable reality.

The world’s pre-eminent naval power has struggled to guarantee free navigation through a waterway it has long promised to keep open.

That failure may prove more consequential than any battlefield outcome.

For decades, the Gulf’s security architecture rested on a simple bargain.

The United States maintained overwhelming military superiority, while Gulf monarchies offered strategic access and energy cooperation in return for protection against regional threats, particularly Iran.

The war has exposed the limits of that arrangement.

According to Al Jazeera, Iranian missile and drone attacks have struck every Gulf Cooperation Council state despite none of them directly participating in the initial offensive.

Whether or not those attacks caused strategic damage, they undermined the central assumption underpinning the American security umbrella: that Washington could deter retaliation against its partners.

The Gulf recalculates

Regional capitals have taken notice.

CNN reports that Saudi Arabia and Qatar are considering a broader non-aggression framework with Tehran while increasingly envisioning a Gulf security order in which the United States plays a less dominant role.

As Simon Mabon, professor of international relations at Lancaster University, told Al Jazeera, the conflict has “pierced” Gulf confidence in American protection, describing Washington’s security umbrella as “moribund at worst, or ineffective at best.”

That assessment may sound harsh, but it reflects a growing strategic dilemma.

No Gulf state appears ready to abandon its relationship with Washington.

Yet none can ignore the vulnerabilities the conflict has exposed.

China possesses economic influence but has shown little appetite for assuming the military responsibilities the United States has carried for decades.

The Gulf states therefore face an uncomfortable reality: they cannot fully trust the existing security guarantee, but neither can they replace it.

Beyond the nuclear question

Seen in that light, Washington’s changing rhetoric becomes easier to understand.

The emphasis on defending freedom of navigation is no longer simply about keeping trade routes open.

It is also about preserving the credibility of an American-led regional order that now looks considerably less certain than it did before February.

Rubio’s insistence that Gulf leaders harbour no doubts about US security commitments sounded less like reassurance than recognition that those doubts now exist.

Iran’s nuclear programme has not disappeared. It remains damaged but intact, and it will almost certainly return to the centre of regional diplomacy.

For now, however, the defining issue is no longer centrifuges.

It is whether the United States can still deliver the security guarantees that have anchored Gulf politics for half a century, or whether this war will ultimately be remembered as the moment when the region began preparing for a post-American security order.

That is a far more consequential question than the one Washington set out to answer on February 28.

The writer is a seasoned journalist covering the economy and international affairs.

In recent years, student protests have increased across many South Asian countries, including Bangladesh, Sri Lanka, Nepal, and India. These protests have been driven by rising living costs, unemployment, concerns over democracy, educational reforms, corruption, and demands for social justice. While the reasons differ from one country to another, they all show that the students continue to play a powerful role in shaping public debate and influencing governments.

The growing wave of student activism across South Asia has also had an important impact on Pakistan’s political environment, encouraging debate about the role of youth in politics and highlighting the need for reforms.

South Asia is home to one of the world’s youngest populations. Millions of young people enter colleges and universities every year with hopes of building better futures. However, many face limited job opportunities, poor educational facilities, rising tuition fees, and economic uncertainty. These challenges have encouraged the students to organise themselves and raise their voices through peaceful demonstrations, social media campaigns, and public meetings.

Modern communication platforms have made it easier for the students in different countries to learn from one another and express solidarity with common causes.

Bangladesh has witnessed some of the largest student protests in recent years. Students have repeatedly organised demonstrations over road safety, education policies, and political issues.

One of the best-known examples was the road safety movement in 2018, which began after two students were killed by a speeding bus in Dhaka. Thousands of school and university students took to the streets demanding stricter traffic laws and better enforcement. Their peaceful protests attracted international attention and forced the government to introduce changes to road safety regulations.

More recently, student-led demonstrations over public sector job quotas developed into wider protests about governance, fairness, and political accountability. These events showed how student concerns can quickly become part of broader national political debates.

India has also experienced major student protests over the past decade. Universities such as Jawaharlal Nehru University, Jamia Millia Islamia, Aligarh Muslim University, and several others have become centres of demonstrations on the issues ranging from tuition fees and university autonomy to citizenship laws and freedom of expression.

During the protests against the Citizenship Amendment Act in 2019 and 2020, thousands of students joined peaceful marches across different cities. Many argued that the students had both the right and the responsibility to participate in debates affecting the country’s future.

Although opinions about these protests differed sharply, they demonstrated the growing political awareness of India’s youth and their willingness to challenge government policies through public action.

More recently, New Delhi witnessed another wave of student protests, with thousands of students and young people gathering to demand reforms in the country’s education system. The demonstrations were supported by education reformer and environmental activist Sonam Wangchuk, who called for greater transparency in competitive examinations, stronger action against alleged examination paper leaks, and improved opportunities for the young people.

Protesters argued that a fair and reliable examination system was needed for protecting the future of millions of students. The demonstrations attracted students, parents, and young professionals from different parts of India and reflected growing frustration over education-related issues. Although clashes between some protesters and police resulted in injuries and arrests, the movement remained centred on demands for accountability, fairness, and better governance.

The protests showed that concerns over education can quickly develop into wider debates about public trust, transparency, and government responsibility. They also reflected a broader regional trend in which the students are increasingly using peaceful public demonstrations to press for reforms and greater accountability.

Sri Lanka provides another important example. In 2022, the country experienced its worst economic crisis in decades. Severe shortages of fuel, food, medicines, and electricity created widespread hardships.

Students joined workers, professionals, and ordinary citizens in nationwide demonstrations demanding political change and economic reforms. Student organisations played a major role in organising peaceful protests and calling for accountability from political leaders.

The protests eventually contributed to major political changes, including the resignation of President Gotabaya Rajapaksa. While many factors shaped these events, student participation highlighted the influence of organised youth movements during times of national crisis.

Nepal has also seen repeated student demonstrations over education policies, corruption, and political reforms. Student unions connected to different political parties remain influential, but many independent student groups have also emerged. They have demanded better educational standards, affordable tuition fees, transparent university administration, and stronger employment opportunities for graduates.

Nepal’s experience shows that the student activism continues to be an important feature of democratic politics in South Asia.

Pakistan has its own long history of student activism. During the movement against military rule in the late 1960s, students played a significant role in demanding democratic reforms. Student organisations remained influential for many years before restrictions were placed on student unions in educational institutions during the 1980s. Although formal student unions were banned, students continued to express their concerns through peaceful campaigns, civil society groups, and social media.

In recent years, there have been growing demands to restore student unions under clear legal frameworks to encourage healthy democratic participation while preventing violence on campuses.

The rise in student protests across South Asia has influenced political discussions in Pakistan in several ways. Firstly, it has encouraged Pakistani students to become more aware of regional developments. Through social media and international news coverage, young people closely follow events in neighbouring countries and compare them with their own experiences. This has increased discussions about education, employment, governance, and democratic participation within Pakistan.

Secondly, regional student movements have strengthened calls for educational reforms. Pakistani students have raised concerns about rising university fees, unequal access to higher education, delays in examinations, shortages of facilities, and limited research opportunities.

Although these issues have existed for many years, successful student campaigns in neighbouring countries have encouraged greater public discussion about improving Pakistan’s education system.

Thirdly, student activism has become an important topic in Pakistan’s broader political debate. Political parties increasingly recognise the importance of attracting young voters, who make up a large share of the country’s population. As students become more politically aware, they asked parties to pay greater attention to issues such as employment, digital access, education, climate change, and economic opportunities. Youth participation has, therefore, become a significant factor in election campaigns and public policy discussions.

Another important impact has been the increased use of social media as a political tool. Students across South Asia use online platforms to organise demonstrations, share information, and express opinions.

Pakistani students have adopted similar methods, using digital platforms to discuss public issues, organise awareness campaigns, and participate in national conversations. While social media provides opportunities for greater engagement, it also creates challenges related to misinformation, online harassment, and political polarisation. Responsible digital citizenship has become increasingly important.

The growing involvement of students in public affairs has also encouraged civil society organisations, journalists, and academics in Pakistan to discuss the importance of protecting peaceful freedom of expression.

Many argue that universities should remain places where students can debate ideas respectfully and participate in civic life without fear, provided that activities remain peaceful and within the law. Others emphasise the need to maintain order on campuses and prevent violence. These discussions reflect the wider challenge of balancing democratic participation with institutional stability.

Student protests have also highlighted economic concerns affecting the younger generation across South Asia. Rising inflation, unemployment, and the increasing cost of higher education have created uncertainty for millions of graduates.

Pakistan faces similar challenges, with many young people worried about finding suitable employment after completing their studies. As a result, economic issues have become closely linked with student activism. Calls for better education are often accompanied by demands for job creation, skills development, and stronger economic policies that offer hope for the young graduates.

Despite their importance, student protests can produce mixed outcomes. Peaceful demonstrations often draw attention to important public issues and encourage governments to respond through dialogue and policy reforms. However, when protests become violent or highly polarised, they can lead to social tensions, disruption of education, and political instability. For this reason, many experts argue that the governments, universities, and student representatives should maintain open channels of communication so that concerns can be addressed through constructive dialogue rather than confrontation.

The future of student activism in South Asia is likely to remain significant. The region’s young population will continue to influence politics, public policy, and social change. Climate change, digital technology, artificial intelligence, economic development, gender equality, and educational reforms are expected to become major issues for future student movements.

Governments that engage positively with young people may benefit from fresh ideas and greater public trust, while ignoring their concerns could lead to increased dissatisfaction and larger demonstrations.

The recent surge in student protests across South Asia reflects the growing political awareness of the region’s youth rather than a single common movement. Although each country’s circumstances are different, the experiences of Bangladesh, India, Sri Lanka, Nepal, and Pakistan show that the students remain an influential force in society.

Their demands often begin with educational or economic concerns but can expand into wider debates about democracy, governance, and accountability.

In Pakistan, these regional developments have encouraged greater political awareness among students, strengthened calls for educational reform, increased youth participation in public affairs, and reminded political leaders that the voices of young citizens cannot be ignored.

As South Asia continues to face social, economic, and political challenges, students are likely to remain among the most active participants in shaping the region’s future.

Countries that successfully build strong economic partnerships are better able to create jobs, attract investment, expand exports, and improve the living standards of their people.

For a developing country like Pakistan, where sustainable economic growth remains a major national priority, economic diplomacy has become one of the most important instruments of foreign policy. It provides Pakistan with opportunities to strengthen its foreign trade, diversify its economy, attract foreign investment, and establish meaningful partnerships that contribute to long-term prosperity.

As global competition continues to intensify, the country’s future economic success will depend largely on how effectively it uses diplomacy to achieve its economic objectives.

Economic diplomacy involves negotiations on trade agreements, investment treaties, market access, development cooperation, technology transfer, tourism promotion, and financial partnerships. Unlike traditional diplomacy, which mainly focuses on political and security issues, economic diplomacy places economic development at the centre of international relations.

Modern diplomats are expected not only to represent their country’s political interests but also to promote exports, attract investors, support businesses, and strengthen commercial ties with the foreign nations.

The importance of economic diplomacy has grown significantly due to globalisation. Countries are increasingly connected through international trade, financial markets, supply chains, and technological innovation. Economic cooperation has become mandatory for achieving sustainable development, improving competitiveness, reducing poverty, and maintaining political stability.

Effective economic diplomacy enables governments to secure favourable trade agreements, expand access to international markets, attract foreign direct investment, encourage tourism, and strengthen regional cooperation. It also improves a country’s international image and creates new opportunities for businesses and industries.

Foreign trade is one of the most important pillars of Pakistan’s economy. It refers to the exchange of goods and services with other countries through exports and imports. International trade allows Pakistan to earn foreign exchange by exporting its products, while importing machinery, fuel, industrial equipment, raw materials, and other basic goods required for economic development. Foreign trade contributes to industrial growth, employment generation, technological progress, government revenue, and improved living standards.

Pakistan’s export sector is dominated by textiles and garments, which account for the largest share of export earnings. Other important exports include cotton yarn and fabrics, rice, leather products, sports goods, surgical instruments, seafood, fruits, vegetables, carpets, and information technology services.

Pakistani surgical instruments and sports goods have earned an excellent international reputation because of their quality, while the country’s IT sector has shown rapid growth in recent years through software development, freelancing, and digital services.

Pakistan imports petroleum and petroleum products, machinery, chemicals, fertilisers, edible oil, pharmaceuticals, electrical equipment, iron and steel, and various industrial raw materials. These imports are necessary to support manufacturing, transportation, agriculture, energy production, and infrastructure development.

However, because the value of imports often exceeds the value of exports, Pakistan regularly experiences a trade deficit, which places pressure on foreign exchange reserves and the national economy.

Economic diplomacy plays an important role in strengthening Pakistan’s foreign trade by creating favourable conditions for business and investment. Through diplomatic negotiations, Pakistan seeks to reduce trade barriers, improve market access for its exports, attract foreign investment, promote technology transfer, and establish stronger commercial partnerships.

Pakistani embassies and commercial missions abroad also assist exporters by identifying business opportunities, organising trade exhibitions, facilitating business contacts, and promoting Pakistani products in the international markets.

China has emerged as the country’s most significant economic partner. The China-Pakistan Economic Corridor (CPEC), one of the flagship projects of the Belt and Road Initiative, has transformed economic cooperation between the two countries.

Investments in roads, motorways, railways, energy projects, Gwadar Port, and Special Economic Zones have improved infrastructure and strengthened regional connectivity. CPEC has the potential to make Pakistan a regional trade and logistics hub connecting South Asia, Central Asia, China, and the Middle East.

The US remains an important destination for Pakistani exports, particularly textiles and garments. Economic relations also extend to agriculture, technology, education, and investment.

Similarly, the European Union is one of Pakistan’s largest export markets. Preferential access to European markets has significantly increased Pakistan’s textile and clothing exports, creating employment opportunities and generating valuable foreign exchange.

Pakistan also enjoys strong economic relations with the Gulf countries, especially Saudi Arabia, the United Arab Emirates, and Qatar. These countries supply Pakistan with petroleum products, while importing textiles, agricultural products, and various manufactured goods.

Further, millions of overseas Pakistanis working in the Gulf send remittances that contribute substantially to Pakistan’s economy and foreign exchange reserves.

Regional economic cooperation has become another important aspect of Pakistan’s economic diplomacy. Through organisations such as the South Asian Association for Regional Cooperation (SAARC), the Economic Cooperation Organisation (ECO), the Shanghai Cooperation Organisation (SCO), and the Organisation of Islamic Cooperation (OIC), Pakistan works to promote trade liberalisation, transport connectivity, investment, and regional economic integration. Improved regional cooperation can reduce transportation costs, expand markets, and create new business opportunities.

Despite these opportunities, Pakistan’s foreign trade continues to face several challenges. The country’s heavy dependence on textile exports makes it vulnerable to changes in the international demand and global market conditions. Many industries continue to rely on outdated technology, resulting in lower productivity and reduced competitiveness.

High energy costs, inflation, exchange rate instability, inadequate infrastructure, complex Customs procedures, inconsistent government policies, and political uncertainty further discourage investment and limit export growth. Pakistan also faces strong competition from the countries such as Bangladesh, Vietnam, India, and China.

Economic diplomacy can help overcome many of these difficulties by expanding trade relations with the emerging markets in Africa, Central Asia, Southeast Asia, and Latin America.

Greater diplomatic engagement can encourage foreign direct investment, facilitate technology transfer, improve industrial competitiveness, and strengthen Pakistan’s participation in global value chains. Diversifying exports beyond textiles by promoting engineering goods, pharmaceuticals, processed foods, information technology services, and value-added agricultural products would also reduce economic vulnerability and increase export earnings.

Pakistan’s future economic prospects remain promising if appropriate policies are implemented consistently. The country’s strategic geographical location provides access to important regional markets, while its young and growing population offers a large workforce capable of supporting industrial expansion and technological innovation. Continued investment in education, research, infrastructure, renewable energy, digital technology, and modern agriculture can significantly enhance Pakistan’s export capacity. Strengthening governance, ensuring political stability, simplifying business regulations, and encouraging innovation will further improve investors’ confidence and economic performance.

Economic diplomacy has become an indispensable component of Pakistan’s foreign policy in the modern era. It enables the country to strengthen foreign trade, attract investment, promote industrial development, and build lasting international partnerships.

Although Pakistan faces considerable economic challenges, it also possesses enormous potential arising from its strategic location, abundant resources, entrepreneurial population, and expanding digital economy. By adopting a forward-looking economic diplomacy strategy, diversifying exports, improving competitiveness, and deepening economic cooperation with regional and global partners, Pakistan can achieve sustainable economic growth, create employment opportunities, improve living standards, and secure long-term national prosperity.

The writer is a seasoned journalist and a communications professional.

He can be reached at tariqkik@gmail.com

There is a clear difference between governing and managing crises. Governing means planning for the future, building strong institutions, making stable economic policies and investing in people. Crisis management focuses on solving immediate problems without fixing the real causes. Pakistan’s experience over the past several decades shows that short-term firefighting has often taken priority over long-term planning, making sustainable development difficult.

Every country faces unexpected challenges such as economic shocks, floods, wars or health emergencies. Good governments prepare for these risks and use crises as opportunities for reform. In Pakistan, however, governments have often relied on temporary measures that provide short-term relief but fail to solve long-term problems. As a result, the same crises return again and again.

The economy is the best example of this pattern. Pakistan has repeatedly faced balance of payments crises, shortages of foreign exchange and rising public debt. Instead of carrying out deep economic reforms, successive governments have depended on emergency loans from the International Monetary Fund (IMF), friendly countries and commercial lenders. These loans prevent an immediate financial crisis but do not remove the weaknesses of the economy.

As of June 2025, Pakistan’s total public debt had reached around Rs80.5 trillion, equal to around 70.7% of GDP, while official foreign exchange reserves stood at around $14.5 billion. Although economic stability has improved, compared with 2023, the country’s dependence on borrowing remains high.

Tax reform is another area where long-term planning has been weak. Pakistan continues to have one of the lowest tax-to-GDP ratios in the region, at around 10 to 11%, well below the level needed to fund quality public services. Instead of expanding the tax base and bringing more sectors into the formal economy, governments have often introduced temporary taxes to meet annual revenue targets. This places a heavier burden on the existing taxpayers, while leaving large parts of the economy outside the tax net. Without broad tax reforms, the government struggles to invest enough in education, healthcare and infrastructure.

The energy sector also shows the cost of short-term thinking. Pakistan has suffered repeated electricity shortages, rising fuel prices and a growing circular debt problem. Governments have often responded with temporary subsidies, emergency fuel imports and delayed payments instead of introducing lasting reforms. These measures reduce public pressure for some time but increase financial losses. Today, circular debt in the power and gas sectors is estimated to be close to Rs5 trillion, showing that the problem remains unresolved.

Agriculture, which contributes around one-fifth of Pakistan’s GDP and provides employment to more than one-third of the labour force, also suffers from poor long-term planning. Farmers face water shortages, outdated irrigation systems, limited access to modern technology and increasing climate risks.

Governments usually announce compensation after floods or droughts, but investment in water conservation, agricultural research and climate-resilient farming remains limited. Better planning could improve food security, increase exports and protect the farmers from future climate shocks.

Education is another sector where emergency measures have replaced lasting reforms. According to recent estimates, more than 26 million children in Pakistan are out of school, one of the highest numbers in the world. Many public schools lack basic facilities, while teacher training and learning standards remain weak.

Governments regularly launch education schemes, but these are often not supported by the long-term reforms or sufficient funding. Real improvement requires consistent investment over many years rather than short-term political announcements.

Healthcare follows the same pattern. During health emergencies, governments increase spending on hospitals and medicines, but investment often falls once the crisis ends. Pakistan spends only a small share of its GDP on public healthcare, leaving many hospitals short of doctors, equipment and medicines. Greater investment in preventive healthcare, disease monitoring and medical research would reduce future health emergencies and improve public wellbeing.

Political instability has also encouraged short-term decision-making. Frequent changes of government, political confrontation and policy uncertainty make it difficult to continue reforms that take years to produce results. Every new government often changes the priorities of the previous one instead of building on successful policies. This lack of continuity weakens institutions, discourages investors and slows economic progress.

Governments also face pressure from the public to provide immediate relief from inflation, unemployment and rising living costs. As a result, they often introduce temporary subsidies, tax concessions or financial support schemes. While these measures may help people in the short-term, they rarely solve the deeper structural problems. Good governance requires balancing immediate public needs with reforms that may take time but deliver lasting benefits.

Pakistan’s business environment also reflects the effects of crisis management. Investors need stable policies, clear regulations and predictable economic conditions. Frequent changes in the tax rules, import policies and business regulations increase uncertainty and reduce investment. Although inflation has fallen sharply from its 2023 peak and economic conditions have become more stable, private investment and industrial growth still require greater policy consistency to recover fully.

Strong institutions are necessary for long-term governance. Institutions ensure that policies continue regardless of political changes. However, in Pakistan, many institutions remain affected by political interference, weak implementation and limited administrative capacity. Building independent and effective institutions may not bring immediate political rewards, but it creates the foundation for sustainable development.

Climate change provides one of the strongest reasons for moving beyond crisis management. The devastating floods of 2022 affected around 33 million people and caused economic losses estimated over $30 billion. Pakistan remains among the countries most vulnerable to climate change, despite contributing less than one per cent of the global greenhouse gas emissions.

Instead of focusing mainly on disaster relief, the country needs long-term investment in flood protection, water storage, urban planning and climate-resilient agriculture.

Technology also offers opportunities for long-term growth. Expanding digital payments, improving tax collection through technology, supporting innovation and modernising public services can increase productivity and reduce corruption. However, these reforms require consistent policies, skilled workers and long-term investment rather than short-term projects.

Despite its challenges, Pakistan has many strengths. It has a population of more than 240 million, with nearly two-thirds under the age of 30. It has a strategic location linking South Asia, Central Asia and the Middle East, a growing technology sector and strong agricultural resources. If these strengths are supported by better governance, stable economic policies and institutional reforms, the country can achieve sustainable growth and create more jobs for its young population.

Many countries have shown that long-term planning produces better results than constant crisis management. They invested in education, exports, tax reforms and strong institutions over many years. Although these reforms were difficult at first, they eventually created stronger economies and higher living standards.

Pakistan can follow a similar path if governments remain committed to long-term national goals instead of short-term political gains. The problem is not that the country faces crises. Every country does. The real problem is that many crises are handled with temporary solutions, while the root causes remain untouched. The country cannot achieve lasting prosperity by moving from one emergency to another. Short-term firefighting may prevent immediate disaster, but it cannot replace sound planning, strong institutions and consistent economic reforms.

Pakistan’s future depends on shifting from reactive governance to proactive leadership. Success will come not from how well governments manage crises, but from how effectively they prevent them through long-term planning, economic discipline and investment in people.

A strong banking sector not only helps individuals and businesses manage their finances but also contributes to economic development, job creation and financial stability.

Over the years, Pakistan’s banking sector has undergone significant transformation.

Banks have adopted modern technology, expanded access to financial services and introduced innovative products to meet the changing needs of customers.

These developments have made banking more convenient, efficient and accessible for people from different walks of life.

The banking industry in Pakistan consists of commercial banks, Islamic banks, microfinance banks and specialised financial institutions.

These institutions operate under the supervision of the State Bank of Pakistan (SBP), which regulates the sector, maintains financial stability and ensures the smooth functioning of the country’s financial system.

Through various reforms and policy measures, the SBP has encouraged the banks to modernise their services and promote financial inclusion.

In recent years, the banks have increasingly focused on improving customer experience through digital solutions, enhanced accessibility and tailored financial products.

Mobile banking, internet banking and branchless banking services have transformed the way people conduct financial transactions.

Customers can now transfer funds, pay utility bills, apply for financial products and manage their accounts through smartphones and computers without having to visit a bank branch.

Besides improving customer services, the banks also have an important role in strengthening the country’s taxation system.

Pakistan has long faced the challenge of a narrow tax base and a large undocumented economy.

The banks can help address this issue by encouraging individuals and businesses to use formal financial channels.

When transactions are conducted through bank accounts and digital payment systems, they become properly documented, making it easier to maintain financial records and fulfil tax obligations.

By promoting cashless transactions, simplifying account-opening procedures and supporting transparent financial practices, the banks can contribute to a more documented economy and help increase government revenue needed for public service and development projects.

As an example of the progress being made in the sector, Meezan Bank has emerged as a leading institution in the banking industry.

As the country’s largest Islamic bank, it has played an important role in promoting Shariah-compliant banking services.

The bank offers a range of products, including savings accounts, home financing, vehicle financing and business financing solutions that cater to the needs of individuals and businesses.

Meezan Bank has also invested significantly in digital banking technologies, enabling customers to perform transactions and manage their finances through secure online platforms.

Its success demonstrates how innovation and customer-focused services can strengthen the banking sector.

Another example is Habib Bank Limited (HBL), which has contributed to the growth of digital banking and financial innovation in Pakistan.

Through mobile banking applications, online services and branchless banking solutions, HBL has helped make banking more accessible and convenient.  

The bank’s efforts reflect the wider trend within the banking industry to embrace technology and improve customer satisfaction.

The rapid growth of digital banking has transformed the relationship between customers and financial institutions.

Today, banking services are available round-the-clock, allowing people to conduct transactions whenever and wherever they choose.

This convenience has encouraged more people to enter the formal banking system and reduced reliance on cash-based transactions.

Microfinance banks have also played an important role in expanding access to financial services.

These institutions serve individuals and small businesses that may not qualify for traditional banking products.

By offering microloans, savings accounts and financial literacy programmes, microfinance banks help low-income households improve their financial stability and create opportunities for entrepreneurship.

Their contribution is particularly important in rural and underserved areas.

One of the most significant developments in Pakistan’s banking landscape has been the rise of branchless banking and digital financial services.

Mobile-based payment solutions have enabled people to transfer money, pay bills and carry out various financial transactions through their mobile phones.

Such services have made banking more accessible to people living in remote areas where traditional banking infrastructure may be limited.

The banks are also introducing specialised products to meet the diverse needs of the customers.

Many institutions now offer banking solutions specifically designed for women, helping increase women’s participation in the financial system.

These products often include simplified account-opening procedures, financial education initiatives and services tailored to the needs of women entrepreneurs and professionals.

Similarly, young people are becoming an important focus for the banks.

Special accounts for students and young professionals encourage saving habits and financial discipline while providing access to modern digital banking tools.

These initiatives help prepare younger generations to participate more effectively in the formal economy.

Small and medium-sized enterprises (SMEs) are widely recognised as the backbone of economic growth and employment generation.

The banks are increasingly offering financing solutions, trade facilities and advisory services to support entrepreneurs and business owners.

Improved access to finance enables businesses to expand operations, create jobs and contribute to economic development.

The agricultural sector, which remains a major part of the economy, also benefits from banking services.

Financial institutions provide agricultural financing, crop loans and livestock financing programmes that help farmers adopt modern farming methods and improve productivity.

Such support contributes to rural development and strengthens food security.

Customer service has become a key priority for the banks across Pakistan.

Financial institutions are investing in staff training, customer support centres and modern complaint-handling systems to improve the overall banking experience.

Many banks now provide 24-hour customer support through helplines, online chat services and social media platforms, ensuring that customers can receive assistance whenever required.

As digital banking continues to expand, cybersecurity has become increasingly important.

The banks are implementing advanced security measures such as biometric verification, two-factor authentication and fraud monitoring systems to protect customer information and ensure the safe use of digital financial services.

Maintaining trust and confidence is necessary for the continued growth of online banking.

Another important trend is the growing emphasis on responsible and sustainable banking practices.

The banks are becoming more aware of their role in supporting social and economic development.

Many institutions participate in programmes that promote education, financial awareness and community welfare.

These efforts help people understand the benefits of saving, budgeting and responsible financial management.

Technology has also improved the efficiency of banking operations.

Online account opening, electronic statements and digital payment systems have simplified many routine processes.

Customers no longer need to spend long periods waiting in branches for basic transactions, while the banks benefit from lower operational costs and greater efficiency.

Financial literacy remains an important area for further improvement.

Many people, particularly in rural communities, still have limited knowledge of formal financial services.

The banks, educational institutions and regulatory authorities, therefore, need to continue working together to increase awareness about savings, investments, borrowing and digital banking.

Better financial literacy can help individuals make informed decisions and encourage wider participation in the banking system.

Likewise, the increasing use of digital payment systems by businesses is another positive development.

Retailers, restaurants and service providers are gradually adopting electronic payment methods, allowing customers to make payments through mobile applications, debit cards and other digital channels.

This shift supports transparency, improves record-keeping and contributes to a more documented economy, which, in turn, supports better tax collection and economic planning.

The banking sector is also helping Pakistan move towards a more digital economy.

As internet access and smartphone usage continue to grow, the demand for digital financial services is expected to increase further.

The banks are, therefore, investing in innovation, security and customer-focused technologies to meet future needs and expectations.

Even though a lot of progress has been made, there are still challenges.

A significant portion of Pakistan’s population still operates outside the formal banking system.

Expanding access to banking services, improving financial literacy and encouraging greater use of digital financial tools will remain priorities.

At the same time, the banks must continue strengthening cybersecurity measures and maintaining high standards of customer service.

The future of Pakistan’s banking industry appears promising.

Continued investment in technology, innovation and customer-focused services is expected to strengthen the sector further.

The growing popularity of Islamic banking, digital payments and financial inclusion initiatives will continue to shape the future of financial services in the country.

Pakistan’s banking system has evolved significantly over the years, becoming more modern, efficient and accessible.

The banks are making continuous efforts to improve customer services and introduce innovative products suited to the needs of the people.

Institutions such as Meezan Bank and Habib Bank Limited serve as examples of how the banking industry is embracing technology, enhancing customer convenience and developing products that meet the changing market demands.

By supporting financial inclusion, promoting transparent transactions and contributing to a more documented economy, the banks can also play an important role in improving taxation and strengthening national development.

Through innovation, technology and a strong commitment to customer satisfaction, the banking sector is well-positioned to support the country’s economic growth and financial progress in the years ahead.

The writer is a seasoned journalist and a communications professional.

He can be reached at tariqkik@gmail.com

These inflows include the continuation of time deposits by Saudi Arabia and China, combined of USD 12 billion in 2026-27, with USD 3 billion more recently from Saudi Arabia. Therefore, excluding these time deposits, the total targeted inflow of external assistance in 2026-27 is USD 11.37 billion.

The worrying aspect of this projection is that it implies a significant jump in inflows in 2026-27. The revised estimate of the inflow in 2025-26 up to May 26, excluding the continuation of time deposits, is USD 9.07 billion. As such, the projected inflow in 2026-27 of USD 11.37 billion, implies that the target growth rate is anticipated at as high as almost25 percent.

There has also been an apparent decline in inflows in 2025-26. The total inflow, excluding time deposits, was USD 12.14 billion in 2024-25. This implies that the inflows of external assistance have declined by as much as 25.3 percent in 2025-26.

What explains this optimism about inflows in 2026-27? Is this attributable to the continued umbrella of the IMF program? However, the Program was proceeding smoothly even in 2025-26 and yet there was a shortfall in some types of assistance.

Is Pakistan anticipating renewed and increased support from the international community following its very useful role of mediation in the US-Iran negotiations for a sustainable ceasefire?

A perhaps more objective analysis would be to find out the changes in inflows from different sources in 2025-26, in relation to the level in 2024-25. Also, the Ministry of Economic Affairs had set targets for different inflows in 2025-26 and there is need to find the divergence in the actual inflows.

There are five major sources of external assistance excluding the time deposits continuation or new inflows. These are bilateral and multilateral gross inflows, net generation of funds by flotation of bonds, borrowings from the commercial banks and the inflow into the Naya Pakistan Certificate. During periods of an on-going IMF program there are also inflows from this source.

The bilateral inflows in 2025-26 are close to the target for the year. However, the absolute magnitude is small at USD 1.32 billion, with USD 1.00 billion from the Saudi Oil Facility. There was a time a decade earlier when there were substantial inflows from China as part of CPEC.

Multilateral funding is a relatively large source of, more or less, concessional financing. However, the year 2025-26 has witnessed a big decline in this inflow. The target for 2025-26 was close to USD 5 billion, since the actual inflow in 2024-25 was USD 4.8 billion. However, in the first eleven months of 2025-26 the inflow has been USD 3.1 billion, almost 38 percent below target.

The big fall is in the inflows from the Asian Development Bank and the World Bank, who have traditionally been major sources of concessional project finance. The assistance from the ADB is likely to be 53 percent below target, while the shortfall in the case of the World Bank is 10 percent below target. There is need to investigate the big shortfall of over USD 1 billion in assistance from the ADB.

The target of borrowing by flotation of bonds was USD 0.4 billion in 2025-26. One of the few indicators of success is that the actual amount raised is USD 1 billion. The process of flotation of PANDA bonds in China has successfully commenced.

Another big shortfall in 2025-26 is in the level of borrowing from international commercial banks. The target was set at USD 3.1 billion for 2025-26, after big level of borrowing from this source of USD 4.3 billion in 2024-25.

The surprise is that the lending by foreign commercial banks to Pakistan is only USD 0.2 billion up to May 26. What has led to this big failure? An IMF Programme is operational. Further, foreign exchange reserves have been higher throughout 2025-26, compared to the level of USD 14.5 billion in June 2025. They stand at USD 16.5 billion at the end of 2025-26.

The reluctance of international commercial banks to lend to Pakistan, when there has been an improvement in the credit-worthiness of the country needs to be analysed. Also, Pakistan needed this financing, given the shortfall particularly in multilateral financing.

The last significant source is the Naya Pakistan Certificate. It has emerged as a major mechanism for external financing. The inflow into this scheme has been USD 2.5 billion in 2015-16, compared to USD 1.9 billion in 2024-25, and with a surprisingly low target of USD 0.6 billion.

Overall, the inflow of new external assistance to Pakistan, excluding the continuation of time deposits, is estimated at close to USD 9 billion in 2025-26. The budgetary target was USD 10.9 billion. There is also a big shortfall in relation to the actual inflow in 2024-25 of as much as 32 percent.

Despite this failure, the Ministry of Finance targeted for USD 10.4 billion inflow of external assistance in 2026-27, excluding the continuation of time deposits. This will represent an increase of over 15 percent over the actual level in 2025-26.

The apparent reason for this enhanced target inflow is the big expected jump in foreign debt repayment obligations from USD 12 billion to USD 19.4 billion, in the event there is maturity of some time deposits, as happened with the deposit by the UAE. Fortunately, this was countered by a corresponding increase in deposit from Saudi Arabia.

Pakistan is at a point in its external payments and receipts where some degree of fragility could come back again in 2026-27. It is important that larger inflows from bilateral, multilateral and foreign commercial banking sources are achieved. Otherwise, there will be pressure on foreign exchange reserves, especially after the ending of the IMF Programme next year.

If Pakistan wants a stronger economy, better public services, and lower dependence on debt, it must finally confront an uncomfortable reality.

The country cannot achieve sustainable fiscal stability without taxing its elite more effectively.

Pakistan’s tax system has long suffered from a narrow tax base.

Millions of citizens pay indirect taxes whenever they purchase goods, fuel, electricity, mobile phone services, or other products.

However, many wealthy individuals and influential sectors contribute far less than they should in relation to their income and assets.

This imbalance creates a system that is not only inefficient but also unfair.

The Federal Board of Revenue (FBR) has improved tax collection in recent years.

According to official figures, the revenue board achieved around Rs11.9 trillion in tax collection during FY2024-25, representing a growth of more than 26 per cent, compared with the previous year.

Direct taxes accounted for around 49 per cent of the federal tax revenues, while sales tax, customs duties, and federal excise duties made up the remainder.

The government has also set even higher revenue targets for subsequent years, reflecting increasing pressure to finance public spending and debt obligations.

Despite these gains, Pakistan’s tax effort remains weak, compared with many developing economies.

Tax revenue remains low against the size of the economy, and only a small percentage of the population pays income tax.

Reports indicate that approximately 1 to 2 per cent of Pakistanis pay income tax, one of the lowest proportions among major economies.

This suggests that the issue is not simply tax rates. The larger problem is that too many wealthy individuals and sectors remain outside the effective tax net.

One reason for this situation is elite capture.

Elite capture is when powerful groups use their influence to make rules that help themselves rather than the wider public.

In Pakistan, powerful landowners, large traders, property investors, and politically connected groups have often resisted efforts to broaden the tax base.

As a result, governments repeatedly find it easier to increase indirect taxes or place additional burdens on the existing taxpayers than to challenge entrenched interests.

The consequences are visible across society. Salaried employees generally have taxes deducted directly from their income and have limited opportunities to avoid payment.

Formal businesses face extensive documentation requirements and regular scrutiny.

Meanwhile, significant wealth can remain lightly taxed or untaxed through loopholes, exemptions, weak enforcement, or political influence.

This creates resentment among compliant taxpayers and reduces confidence in the fairness of the system.

Agricultural income taxation remains one of the clearest examples of this imbalance.

Agriculture contributes a substantial share to Pakistan’s economy, yet agricultural income taxes generate only a tiny fraction of the overall revenue.

Studies have estimated that agricultural taxation has the potential to generate billions of rupees annually if implemented effectively, but actual collections remain extremely low.

The issue is not about taxing small farmers who struggle with rising costs, water shortages, and uncertain incomes.

Any serious reform must protect small landholders and subsistence farmers.

The focus should instead be on large commercial agricultural operations and wealthy landowners who earn substantial incomes.

There is little economic justification for treating high agricultural income more favourably than the income earned in manufacturing, services, or professional occupations.

Agricultural taxation is also important for reasons beyond revenue.

When certain sectors receive preferential treatment, economic decisions become distorted.

Investors may structure activities to qualify for lower tax rates rather than pursuing the most productive opportunities.

Equal treatment across sectors promotes fairness, efficiency, and transparency.

The retail and wholesale sectors present another major challenge.

Retail trade contributes significantly to economic activity, yet tax compliance remains limited.

Large numbers of businesses operate largely outside the documented economy.

Successive governments have launched schemes to bring traders into the tax net, but progress has been slow because of resistance from powerful interest groups and weak enforcement.

Real estate is another area where reform is needed. Property has long served as a preferred store of wealth.

While real estate investment can support economic development, excessive tax advantages encourage speculative activity rather than productive investment.

Large gains from property transactions often receive more favourable treatment than the income earned through productive enterprise.

This diverts capital away from industries that create jobs, exports, and innovation.

Pakistan should, therefore, move towards a more comprehensive taxation of wealth and capital gains.

Accurate property valuation systems, improved land records, and greater transparency can help reduce tax avoidance.

Modern technology makes these reforms increasingly feasible.

Digital databases, electronic transactions, and data sharing between institutions can improve compliance while reducing opportunities for corruption.

Reforming elite taxation is not only about collecting more money.

It is also about strengthening the social contract between citizens and the state.

People are more willing to pay taxes when they believe the system is fair.

When ordinary workers see wealthy individuals avoiding taxation while public services remain inadequate, trust in government declines.

This weakens compliance and encourages further tax evasion.

The government has already started using technology to improve enforcement.

FBR has expanded digital monitoring systems, data integration, and compliance initiatives.

Authorities have also introduced efforts to identify discrepancies between declared income and visible lifestyles.

These measures can help improve documentation and reduce evasion.

However, technology alone cannot solve the problem if political will remains weak.

True reform requires confronting vested interests. This is often difficult because many influential groups possess significant political and economic power.

Yet postponing reform only increases the burden on future generations.

Every year that potential revenue remains uncollected, the government must either borrow more, reduce spending on fundamental services, or place additional taxes on those already complying.

Education, healthcare, infrastructure, and public safety all require funding.

Pakistan’s development needs are enormous. Millions of children remain out of school, healthcare services are under pressure, and infrastructure investment continues to lag behind the needs of a growing population.

Without stronger domestic revenue mobilisation, these challenges will remain difficult to address.

International experience offers useful lessons. Countries that successfully expanded their tax bases did not rely solely on higher rates.

Instead, they improved documentation, reduced exemptions, strengthened institutions, and ensured that wealthy individuals and powerful sectors contributed their fair share.

Broad-based taxation tends to be more stable, efficient, and equitable than systems that depend heavily on a small group of taxpayers.

Therefore, Pakistan should pursue a balanced reform agenda.

First, agricultural income taxation should be applied effectively to large landowners, while protecting small farmers.

Second, retail and wholesale sectors should be gradually documented through digital payment systems and improved record-keeping.

Third, property taxation and capital gains taxation should better reflect actual market values.

Fourth, unnecessary exemptions and special privileges should be reviewed and reduced.

Finally, tax administration should continue modernising to improve transparency and reduce opportunities for corruption.

At the same time, government spending must become more efficient.

Citizens are more likely to support tax reforms when they see tangible improvements in public services.

Taxation and accountability must go hand in hand. Raising revenue without improving governance will not generate lasting public trust.

Pakistan has made progress in increasing tax collection, but the deeper structural challenge remains unresolved.

The formal sector, salaried workers, and ordinary consumers cannot continue carrying a disproportionate share of the burden, while significant pockets of wealth remain lightly taxed.

Sustainable economic progress requires a broader and fairer tax system.

The choice is ultimately between preserving privilege and building prosperity.

Expanding the tax base, taxing large agricultural incomes, documenting under-taxed sectors, and reducing elite capture will not solve every economic problem.

However, these reforms would represent a major step towards a more equitable and financially stable Pakistan.

A country of more than 240 million people cannot rely indefinitely on a narrow group of taxpayers.

If it is serious about fiscal reform, it must understand that those who benefit the most from the economy should contribute their fair share to its future.

President Trump’s manipulation of the oil market subsequent to the 28 February 2026 launch of the US/Israel war on Iran has been frequent - through statements on social media timed to impact the market on a Monday, or so allege his critics. This generated genuine bafflement at the seeming naïveté of those operating in the oil market in being so easily convinced of the veracity of the President’s widely divergent announcements that he continues to make – announcements that alternate from an interpretation of the Memorandum of Understanding (MoU) widely different from Iran’s interpretation, followed by threats to obliterate Iran interspersed with periodic attacks on Iran invariably trailed by Iran’s retaliation.

The question is what motivates President Trump to manipulate the market? Perhaps he miscalculated on two counts: (i) failure to recognise the interconnectedness of the energy global market or, in other words, to understand that a world supply shortage as a consequence of the Middle East conflict would impact on gas prices in the US, in spite of the country being as a major oil producer; and (ii) insider trading, deliberate or otherwise, that may leave him open to charges of enriching his friends.

Soon after the war began the US had large stocks of oil; however, as the war has stretched into its fifth month stocks have begun to reach dangerously low levels, threatening the onset of a recession. This has angered Americans in general, including his support base, with severely negative repercussions on his personal popularity rating that is likely to impact on the impending mid-term elections scheduled for 6 November 2026.

All 435 seats are up for elections in the House of Representatives while 35 out of 100 are up for re-election in the Senate. Presently, surveys suggest that Republicans safe seats are 140, they are likely to win another 55 seats while 45 of the seats they hold today are likely to go either way. Democrats have 182 safe seats, they are likely to win another 10 and only 3 seats that they hold today could go either way. In the Senate, the Republicans have only 4 safe seats, one they will probably win and 4 could go either way while Democrats have 18 safe seats, another 6 they are likely to win and 6 could go either way. In the event that Republicans fail to secure majority in the two houses as it is being projected today President Trump maybe impeached, a concern he has already publicly admitted.

There are growing allegations that the President’s statements on deals or strikes against Iran are enriching a few traders. At present, the Commodity Futures Trading Commission is investing irregular trading activity, of up to 800 million dollars at last count. Be that as it may, it is relevant to note that the oil price decline in the event of President Trump announcing an imminent deal with Iran is in the futures market, which has yet to impact on the price of oil at the gas pump. In this context the Pakistani public urging the government to reduce petrol prices at the pump is certainly premature unless of course we have access to subsidised imported oil.

Survey after survey reveals that with the pump prices not lowered the US public is not heeding President Trump’s narrative that the war is over and the matter resolved – a factor that indicates that the general public is never convinced of the veracity of any narrative if the value of each unit of currency they earn continues to erode.

The Pakistani public, too, has remained indifferent to government claims of a decline in inflation though in our case both the narrative and the data are being manipulated. The narrative in Pakistan is that the economy is on a growth trajectory and the proof is in a buoyant stock market. Given that less than one percent of Pakistan’s population engages in the stock market, frequent references by finance ministers, including the incumbent, to a bullish market as indicative of the success of their policy decisions is simply not tenable. This is strengthened by several research studies, including that of Hussain and Tariq Mehmood, who concluded that “a disturbing feature of Pakistan’s stock market is that it cannot be characterized as a leading indicator of economic activity and in the absence of other strong indicators shooting up stock prices may indicate a speculative bubble.”

Empirical studies further suggest that the Pakistan Stock Market is dominated by brokers, a tight-knit club, with the capacity to manipulate the market. Its uptick especially at times when the incumbent finance minister is facing criticism has led many a critic to maintain that the leverage of the government rests with a threat to raise taxes. There is a 15 percent general sales tax on listed securities for filers and 30 percent for non-filers; however, there is a relatively low rate on actual transactions and capital gains compared to other countries; for example, India levies a Securities Transaction Tax (STT) on every trade, in addition to Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) taxes.

The International Monetary Fund in its October 2024 report highlighted important shortcomings in data that impacts on one-third of our GDP – an observation supported by independent economists that led to a technical assistance to the Pakistan Bureau of Statistics. But to reiterate manipulating inflation figures does not convince the general public.

To conclude, a narrative may initially convince some of the people some of the time but even die-hard supporters will withdraw their support if they see a steady erosion of the value of each unit of currency they earn. And inflation is one statistic whose impact is evident to a householder as soon as he/she goes to the market to purchase any item or service. The lesson to be learned is to back claim of achievements with data that resonates with ground realities facing the public.

For decades, Pakistan’s electricity system has struggled with ageing infrastructure, frequent power outages, technical inefficiencies and electricity theft. These issues have not only affected households but have also placed significant pressure on businesses and industries that rely on a stable supply of electricity to operate efficiently. As the country seeks to strengthen its economy and attract investment, improving the performance of the power sector has become increasingly important.

The World Bank funding is expected to support upgrades to key parts of the national electricity grid. A stronger grid will allow electricity to move more efficiently from power plants to homes, businesses and factories. By reducing losses during transmission and distribution, more electricity can reach consumers instead of being wasted through outdated systems and technical faults.

Many energy experts believe that one of the most immediate benefits of the project could be a reduction in power interruptions. Loadshedding and unexpected blackouts have long been a source of frustration for the citizens across the country.

During the hot summer months, when temperatures often rise to extreme levels, electricity shortages can become particularly difficult for the households. Businesses also suffer financial losses when production is interrupted by unreliable power supplies.

Supporters of the project argue that a more dependable electricity system could have far-reaching economic benefits. Reliable power is considered one of the foundations of economic growth.

Factories require uninterrupted electricity to maintain production, while commercial enterprises depend on stable supplies to serve the customers and expand operations. Improved infrastructure could help increase productivity, encourage investment and create employment opportunities in different sectors of the economy.

The funding also comes at a time when Pakistan is witnessing rapid growth in renewable energy, particularly solar power. Across the country, households and businesses are increasingly turning to rooftop solar systems to reduce dependence on the national grid and manage rising electricity bills. However, integrating renewable energy into an ageing electricity network presents significant technical challenges.

Experts say that modernising the grid is necessary if Pakistan wants to make greater use of clean energy sources in the future.

Another important advantage of the project is its potential contribution to climate resilience. Pakistan is among the countries most vulnerable to the effects of climate change, facing repeated floods, heatwaves and other extreme weather events.

Stronger and more modern electricity infrastructure can help reduce the risk of widespread power failures during emergencies and improve the ability of fundamental services to continue operating during difficult conditions.

There is also hope that better technology and improved monitoring systems will strengthen the financial performance of electricity distribution companies. These companies have long struggled with operational inefficiencies, losses and weak revenue collection. Modern systems can help improve monitoring, billing and maintenance, potentially reducing costs and improving service delivery over the long term.

Despite the positive expectations surrounding the funding, concerns remain about the challenges that could affect the project’s success. One of the most frequently raised issues is Pakistan’s growing debt burden. Although World Bank financing is generally provided on favourable terms, compared with the commercial borrowing, it still adds to the country’s financial obligations.

Critics argue that Pakistan must be careful not to become overly dependent on external financing to address structural problems.

Questions have also been raised about implementation. Pakistan has launched numerous infrastructure projects in the past, but some have faced delays, cost overruns and management difficulties.

Observers say that securing funding is only the first step. Effective planning, transparent procurement processes and strong oversight will be necessary to ensure that the investment delivers the expected results.

Electricity theft continues to be another major obstacle. Illegal connections and unpaid bills contribute significantly to the financial losses within the power sector. Analysts point out that upgrading infrastructure alone will not eliminate these problems. Broader reforms, stronger enforcement and improved governance will also be required if the sector is to achieve lasting improvements.

Many consumers are also wondering whether the project will eventually lead to lower electricity bills, as rising power tariffs have become a major concern for the households and businesses alike. While improved efficiency may reduce some operational costs over time, experts caution that the consumers should not expect immediate reduction in electricity prices. The benefits of infrastructure improvements often take years to become fully visible.

There are also concerns about whether all regions of the country will benefit equally from the investment. Large infrastructure projects often prioritise major urban centres and economically important areas.

Some observers argue that the policymakers must ensure rural and less-developed regions are not overlooked when decisions are made about where improvements will take place.

Environmental and social considerations will also need careful attention. Construction and infrastructure upgrades can sometimes disrupt local communities or require land acquisition. Ensuring that environmental standards are maintained and that affected communities are treated fairly will be important for the project’s long-term success.

Energy specialists argue that Pakistan’s electricity challenges extend beyond transmission and distribution networks. The country continues to grapple with circular debt, regulatory weaknesses and broader structural issues within the power sector.

While grid modernisation is an important step, they believe it should be accompanied by wider reforms to create a more sustainable and financially stable energy system.

Even with these concerns, the World Bank’s approval of $376 million is widely regarded as a significant opportunity for Pakistan. The investment has the potential to strengthen infrastructure, improve service reliability and support future economic growth. If implemented effectively, it could help modernise a sector that has struggled with inefficiency and underinvestment for many years.

The coming years will determine whether the project delivers on its promise. Success will depend not only on financial resources but also on sound management, transparency and the willingness of the policymakers to pursue broader reforms.

For millions of Pakistanis who continue to face the challenges of unreliable electricity and rising costs, the hope is that this investment marks the beginning of meaningful and lasting improvements in the country’s power system.

As Pakistan seeks to balance economic development, energy security and environmental sustainability, the strengthening of the national electricity grid may prove to be one of the most important infrastructure initiatives of recent years.  Whether it becomes a turning point for the country’s energy sector will ultimately depend on how effectively the opportunity is used.

According to the Pakistan Economic Survey 2025-26, agriculture contributes around 23.4% of Gross Domestic Product (GDP) and employs approximately 33.1% of the national labour force. The fertile plains of Punjab, the productive lands of Sindh, the orchards of Khyber-Pakhtunkhwa, and the fruit-growing valleys of Balochistan provide the country with rich agricultural resources.

However, rapid population growth, climate change, water shortages, outdated farming methods, and weak infrastructure continue to threaten food security. Therefore, modernising agriculture is not merely an option but a top priority for the country.

Food security means that every citizen has regular access to sufficient, safe, and nutritious food. It is not only about producing more crops but also about making food affordable and available throughout the year. Although Pakistan has increased agricultural production over time, millions of people still suffer from food insecurity and malnutrition.

Rising food prices, natural disasters, and unequal access to resources have made healthy food difficult for many families to afford. As the population continues to grow, improving agricultural productivity has become necessary to ensure national food security.

Agriculture remains one of the strongest pillars of Pakistan’s economy. The Economic Survey of Pakistan 2025-26 recorded an overall agricultural growth rate of 2.89%, despite difficult weather conditions. Wheat production reached around 29.61 million tonnes, rice production nearly 9.99 million tonnes, and sugarcane production around 89.45 million tonnes.

Livestock, the largest agricultural sub-sector, also grew 3.75%, showing its increasing importance for rural livelihoods and food production. While these figures are encouraging, the country still performs below its agricultural potential because many farmers continue to depend on traditional cultivation methods, poor quality seeds, outdated machinery, and inefficient irrigation. Modernisation is, therefore, important to bridge this gap.

One of Pakistan’s greatest strengths is the Indus Basin Irrigation System, one of the largest contiguous irrigation networks in the world. Yet, a large amount of water is wasted through flood irrigation, canal seepage, and poor water management.

Climate change has also reduced water availability through shrinking glaciers, irregular rainfall, and prolonged droughts. Modern irrigation techniques such as drip irrigation, sprinkler systems, laser land levelling, and digital water management can save water while increasing crop yields. Improving canal infrastructure and constructing additional water reservoirs are equally important for securing the country’s future food supply.

Climate change poses one of the greatest threats to Pakistan’s agriculture. The devastating floods of 2022 destroyed millions of acres of farmland, displaced farming communities, and caused billions of dollars in economic losses.

Since then, Pakistan has experienced severe heatwaves, irregular monsoon rains, droughts, and pest attacks, all of which have reduced agricultural productivity. These challenges demand climate-smart agriculture. Farmers should be encouraged to use drought-resistant and flood-tolerant seed varieties, modern weather forecasting systems, and scientific farming methods to minimise losses and ensure stable crop production.

Technology has transformed agriculture around the world, and Pakistan must adopt these innovations more rapidly. Farmers can now benefit from satellite imagery, drones, mobile applications, weather forecasting, and precision farming techniques. Mobile phones provide timely information on fertiliser use, pest control, weather conditions, and market prices.

Digital platforms also connect farmers directly with the buyers, reducing the role of middlemen and increasing profits. Precision farming enables fertilisers and pesticides to be used only where needed, reducing production costs while protecting the environment.

Mechanisation is another important step towards agricultural modernisation. Many farmers in Pakistan still depend on manual labour or outdated machinery, which reduces efficiency and productivity. Modern tractors, harvesters, seed drills, and laser land levellers allow the farmers to cultivate larger areas in less time while reducing labour costs.

Laser land levelling also improves irrigation efficiency by distributing water evenly across fields. Government support through affordable machinery rental schemes and low-interest agricultural loans can help the small farmers benefit from modern equipment.

Scientific research has a major role in improving Pakistan’s agriculture. Agricultural universities and research centres continue to develop better crop varieties and farming methods, but these innovations often fail to reach ordinary farmers.

Agricultural extension services should provide practical guidance on soil testing, fertiliser use, disease control, pest management, and climate adaptation. Regular training programmes can help the farmers adopt modern technology confidently and improve their productivity.

Pakistan also loses a significant amount of food after harvest because of poor storage facilities, weak transport systems, and inefficient marketing. Farmers often have no choice but to sell their produce immediately after harvest at low prices. Building modern warehouses, cold storage facilities, refrigerated transport, and food processing industries would greatly reduce these losses.

Better roads and transport networks would also enable the farmers to deliver fresh produce quickly to markets. Reducing food waste is as important as increasing food production because it strengthens food security without expanding cultivated land.

Similarly, small landholdings present another major challenge. Many farmers own only a few acres of land, limiting productivity and reducing profits. These farmers often lack access to quality seeds, machinery, fertilisers, and financial services.

Easy agricultural loans, crop insurance, cooperative farming, and financial support can help these farmers modernise their farms. Inclusive agricultural development is necessary if the benefits of modernisation are to reach all rural communities.

The government has a leading role in transforming agriculture. Investment in dams, irrigation projects, rural roads, electricity, internet connectivity, and agricultural research provides the foundation for modern farming.

Agricultural subsidies should promote efficient water use, improved seed varieties, and environmentally-friendly farming instead of encouraging wasteful practices. Fair market policies can protect both the farmers and consumers while encouraging exports of high-quality agricultural products.

Another pillar of agricultural development is education. Many farmers still rely on traditional knowledge and have limited access to scientific information. Expanding agricultural education and vocational training can improve farming practices and increase awareness of modern technologies.

Universities should encourage young people to pursue careers in agricultural engineering, biotechnology, agribusiness, and digital farming, making agriculture an attractive and profitable profession.

Young people can play a transformative role in Pakistan’s agricultural future. Many leave rural areas because they consider farming unprofitable. However, modern agriculture offers opportunities in precision farming, food processing, agricultural technology, and agribusiness. With proper training, financial support, and access to technology, young entrepreneurs can establish innovative agricultural enterprises that generate employment and improve productivity.

Women can also contribute significantly to Pakistan’s agriculture, particularly in livestock management, dairy production, harvesting, and kitchen gardening. Despite their contribution, they often lack equal access to education, finance, land ownership, and modern technology. Providing women with training, microfinance, and equal opportunities can significantly improve agricultural productivity, household incomes, and family nutrition. Empowering women farmers is, therefore, needed to achieve sustainable food security.

Environmental sustainability must remain key to agricultural modernisation. Excessive use of chemical fertilisers and pesticides has damaged soil fertility and polluted water resources in many areas.

Sustainable farming methods such as crop rotation, conservation agriculture, integrated pest management, organic farming, and efficient water use can increase productivity while protecting the environment. Tree plantation, soil conservation, and responsible groundwater management will ensure that the future generations inherit productive agricultural land.

Pakistan can also learn from countries such as The Netherlands, China, Australia, and Turkey, which have transformed agriculture through scientific research, efficient irrigation, mechanisation, and modern supply chains. Adapting these successful practices to local conditions can significantly improve Pakistan’s agricultural performance. International cooperation in agricultural research, climate adaptation, and technology transfer can further strengthen national food security.

The private sector also has an important role to play. Seed companies, fertiliser manufacturers, machinery producers, financial institutions, and food processing industries can accelerate agricultural growth. Investment in storage facilities, modern technology, and value-added agricultural products creates employment, reduces food waste, and increases farmers’ incomes. Public-private partnerships can speed up the adoption of modern farming practices throughout the country.

Food security is closely linked to national security. A country that cannot feed its people becomes vulnerable to inflation, economic instability, social unrest, and dependence on food imports.

Pakistan spends valuable foreign exchange on importing edible oil, pulses, and other food items that could partly be produced locally through higher agricultural productivity. Increasing domestic food production will reduce imports, strengthen exports, create employment, and support economic growth.

Recent global crises, including the COVID-19 pandemic, climate change, and international conflicts, have shown how vulnerable food supply chains can become. Countries with modern and resilient agricultural systems were better able to protect their populations during these disruptions.

Therefore, Pakistan must build an agricultural sector capable of withstanding future shocks through scientific research, efficient irrigation, digital technology, and sustainable farming practices.

Pakistan possesses all the basic resources needed to become a food secure nation. It has fertile land, hardworking farmers, abundant sunshine, one of the world’s largest irrigation systems, and a growing number of educated young people. What is needed is political commitment, long-term planning, increased investment, and effective implementation of agricultural reforms. Every improvement in farming increases food production, strengthens rural livelihoods, reduces poverty, and promotes national development.

It has been given the title of Uraan, Pakistan. The Plan contains the targets for 2026-27 for key macroeconomic variables.

The target generally most focused on is the GDP growth rate. The Annual Plan for 2025-26 had set a GDP growth rate target of 4.2 percent.

There has been a significant shortfall and the actual growth rate is likely to be 3.7 percent.

However, the surprise is the big difference in the sectoral growth rates in 2025-26 between the Annual Plan and the estimates of Pakistan Bureau of Statistics (PBS).

It is indeed a remarkable coincidence that despite the big differences in sectoral growth rates, the overall GDP growth rate arrived at is the same at 3.7 percent.

Administratively, the PBS is attached to the Ministry of Planning and Development, and yet there appears to be a lack of coordination.

The sectoral performance in 2025-26 has implications for the projection of the sectoral growth rates and the overall GDP growth rate. The Annual Plan projections are as follows:

The targeted growth rate in 2026-27 in the Annual Plan is 4.0 percent, a marginal step forward from the growth rate of 3.7 percent in 2025-26.

A big jump is proposed in the growth rate of agriculture from 1.5 percent to 3.6 percent.

This appears unlikely given the crisis in the cultivation of cotton and the lack of access of farmers to a profitable price of wheat.

The growth rate of industry is actually expected to fall from 5.6 percent in 2025-26 to 4.5 percent in 2026-27.

This probably adjusts for the jump in 2025-26 due to the 60 percent increase in the automotive industry following the big increase in imports.

The growth rate of the services sector is expected to accelerate somewhat from 3.1 percent to 4.1 percent, according to the Annual Plan.

The sub-sectors in the services sector that showed high growth rates in 2025-26 were public administration and defence, education, health and information and communications.

Ideally, from the viewpoint of employment creation, the faster growth sectors should be wholesale and retail trade and transport.

Overall, the targeted GDP growth rate of 4 percent in 2026-27 is potentially an attainable target, especially if the situation in the Middle East returns to normal and the flow of ships freely commences in the Strait of Hormuz. Also, a return to oil and gas imports at lower prices from Iran will facilitate economic growth.

The investment target has been set at 15 percent of the GDP in 2026-27 as compared to 14.4 percent of the GDP in 2025-26.

The last time the investment level reached 15 percent of the GDP was in 2021-22.

Achieving the higher level of investment in 2026-27 will require a quantum decline in interest rates

Also, the issue is one of the sectoral distribution of investment in the country.

There has been a process of diversion of private and public sector investment from manufacturing to real estate. In 2015-16, investment in manufacturing was 38 percent above the level of investment in real estate. A decade later, in 2025-26, it is 44 percent below the level of investment in real estate.

The 2026-27 Federal Budget has actually increased, albeit wrongly, the incentives for investment in real estate.

The rate of inflation is targeted at 7.5 percent in 2026-27.

Before the commencement of the war in the Middle East, the inflation rate had remained low at 5.5 percent from July to February in 2025-26. Since then, it has averaged 10 percent up to May 2026.

The big impact on the rate of inflation was the quantum jump in oil prices, due to the big increase in international prices.

However, there has been a big fall recently in prices of HSD oil and Motor Spirit. This ought to facilitate a decline in the price level and a big reduction in the rate of inflation.

The projected rate of inflation at 8.5 percent may actually turn out to be somewhat on the high side if peace returns on a sustainable basis in the Middle East.

This ought to also facilitate some reduction in interest rates by the SBP in 2026-27.

The projections of the current account in the balance of payments for 2026-27 are conditional, especially on the performance of exports.

They have declined by 5 percent in the first eleven months of 2025-26. However, now the expectation in the Annual Plan for 2026-27 is that they will show a high growth rate of almost 9 percent.

This is unlikely unless exporters are facilitated with a market-based exchange rate policy.

As of May 2026, the level of the Real Effective Exchange Rate (REER) is 106.15.

This implies significant overvaluation of the rupee. The SBP will need to focus on this issue in 2026-27.

Further, there are reports of some contraction in the capacity of the textile industry due to numerous factory closures. The budget of 2026-27 should have come with strong fiscal incentives for investment in export-oriented industries.

Imports have already registered a growth rate of 8 percent in 2025-26. The Plan anticipates the growth rate at 5.6 percent in 2026-27. This will, of course, hinge on the level of oil prices.

Remittances are expected to show a modest growth rate of only 2.9 percent in 2026-27. This is a realistic projection.

However, there will be a need to focus especially on developments in the UAE and Saudi Arabia.

The current account deficit is projected at USD 3.6 billion in 2026-27, as compared to only USD 1.1 billion in 2025-26. This will, of course, hinge on the export performance next year.

Overall, the Annual Plan targets for 2026-27 need to be achieved if there is to be a modicum of growth combined with stabilisation of the economy.

However, achievement of the 4 percent GDP growth target will still imply a rise in the unemployment rate in the economy.

The ambitious Uraan plan targets will need to be achieved in years to come.

“Indeed, so here is a restraining order.”

“Don’t be facetious.”

“OK, how about absence makes the heart grow fonder of someone else?”

“Shush, be serious.”

“OK, so why mention absence? Who is absent in your life?”

“Well, this is with reference to President Trump.”

“I agree he is never absent — even when he is not present, he makes his presence felt.”

“You mean the Truth Social uploads and his calling up his favourite reporters to give them scoops and picks up their phone in case they call and…”

“Indeed, but he is the President of the US – if he wasn’t then many would be quoting him or seeking a sound bite from him….”

“Yeah, yeah, anyway, when I quoted the proverb absence makes the heart go fonder, I was actually not referring to President Trump, well, not directly.”

“There is no one absent that he wants around him. I mean, you can’t….”

“Stop, his Secretary of State, Marco Rubio, is not a chief negotiator, right?”

“He isn’t even a side negotiator, I would reckon he is a tertiary negotiator – see chief is the principal, leads strategy, and that is Witkoff and Kushner, then there is a side negotiator who handles internal communication and relays intelligence and the tertiary who acts as a support scribe or observer.”

“Well, Rubio is not into peace negotiations – you know, with Russia or Iran, but a…”

“Stop right there, he is the lead in South America, a neighbourhood where he hails from and need I say those South Americans are way easier to deal with than these Asians and Russians…”

“All I wanted to mention to you is that our Rubio is Ishaq Dar….”

“Hey, there was no seat available on the flight to Switzerland.…”

“I thought the Prime Minister’s plane….”

“Technical teams took up the bulk of space and…”

“Doesn’t he occupy a technical seat?”

“Well, for your information, he is a deputy prime minister, so in the US parlance, he is JD Vance.”

“That I believe.”

By conventional measures, this counts as progress. Yet it has also obscured a deeper and more dangerous problem: a labour market crisis that now runs through every layer of the workforce, from fresh graduates to mid-career professionals to senior executives.

The official unemployment rate has risen to 7.1 percent, up from 6.3 percent a year earlier.

Most economists suspect the real number is higher. But even that debate understates the problem.

Pakistan is not merely producing too few jobs.

It is producing the wrong workers for the jobs that exist, and too few firms are capable of absorbing the workers it produces.

Start with education. Public spending remains far below what is required for a country with Pakistan’s demographic profile.

Good private schooling exists, but only for a narrow elite. For the majority, the system does not produce literacy, numeracy, discipline, communication skills, or technical competence at any meaningful scale.

Universities continue to release graduates into the market, but too many arrive without the baseline skills employers require. The result is not just unemployment. It is unemployability.

That, however, is only half the story. The other half is demand. Even a better-trained workforce would struggle in an economy where private investment is weak, new firms are not being created at scale, and existing businesses are expanding cautiously.

Pakistan has a human capital problem, but it also has a job-creation problem. The two now feed on each other.

Pakistan’s industrial base has thinned. Manufacturing is no longer creating employment at the pace it once did, and several sectors remain below the momentum they had before the post-2022 squeeze.

Industry has historically been one of the country’s main absorbers of young workers; it has largely stopped playing that role.

The financial sector, more dynamic before the 2008 crisis, has stagnated and added few meaningful new positions.

Telecom, once among Pakistan’s fastest-growing sectors, has matured. Multinationals are leaner.

Across industries, consolidation has narrowed the space for middle- and senior-management roles.

Employers complain that universities are not producing usable graduates.

In many cases, they are right. Entry-level roles exist, especially in export-oriented services such as IT, but firms cannot afford to train underprepared workers for global competition.

At the same time, young graduates argue, also correctly, that there are too few good jobs to absorb them.

The market is stuck in a bad equilibrium: firms say they cannot find talent, workers say they cannot find jobs, and both are telling part of the truth.

Artificial intelligence is likely to make this worse before it makes it better. The first jobs to be squeezed will not be the most sophisticated ones.

They will be the routine, low-skill, entry-level tasks through which young workers normally learn discipline, execution, and judgment.

If those stepping-stone roles disappear, Pakistan’s already weak school-to-work transition will weaken further.

Mid-career professionals face a different bind. Formal domestic employers struggle to retain talent against two pressures: overseas employment, particularly in the Gulf, and remote work for foreign firms.

The Gulf option is now narrowing, but remote work has created a powerful arbitrage.

A Pakistani professional working remotely for a foreign client can often face an effective tax burden far below that of a comparable salaried employee in the domestic formal sector.

Add flexibility, foreign-currency income, no commute, and freedom from office politics, and the choice is not difficult.

This is not merely a lifestyle shift. It is a labour-market distortion.

Pakistan effectively penalises formal domestic employment while lightly taxing the export of labour services.

That may support foreign exchange inflows, but it also weakens the domestic corporate talent pool.

The state cannot keep taxing formal salaried workers heavily while pretending not to notice that comparable workers are moving into lightly taxed offshore arrangements.

At the top end, the squeeze is different but equally structural. Senior talent is not scarce.

It is increasingly surplus. The expansion years of banking, telecom, FMCG, and multinational growth produced a generation of capable managers with another ten or fifteen working years left.

But new institutions are not being created fast enough to absorb them, and existing institutions are cutting exactly the layers in which they sit.

Boards and executive suites remain dominated by an older generation that rarely exits on time.

Below them, companies are flattening hierarchies, merging functions, trimming costs, and replacing senior professionals with cheaper junior substitutes.

A few years ago, experienced professionals with strong credentials had little difficulty finding work.

Today, many sit idle, consult informally, trade on the side, or accept roles far below their competence. This is wasted human capital, and it is becoming a serious economic loss.

The problem may deepen further. As Gulf job prospects soften and some workers return home, Pakistan’s pool of unemployed and underemployed middle-aged professionals will grow.

This is not the unemployment story policymakers are used to discussing.

It is not just young people waiting for their first jobs. It is also experienced workers being pushed out of formal productivity, while still having years of useful work left.

None of this is irreversible, but it requires treating labour-market failure as seriously as Pakistan now treats fiscal failure.

The tax anomaly between domestic formal employment and remote offshore work needs correction. Education reform must focus less on enrollment and more on usable skills.

Investment policy must be judged by jobs created, firms formed, and productive capacity added, not merely by headline inflows.

And Pakistan’s surplus of experienced professionals should be treated as an asset, not debris from corporate cost-cutting.

Properly deployed in training, mentoring, governance, and enterprise-building roles, they can help offset years of underinvestment in human capital.

Stabilisation was necessary. But stabilisation is not a growth model.

An economy cannot stabilise its way to prosperity. At some point, it must create firms, absorb workers, reward skills, and give people a credible path into productive work.

Without that, Pakistan’s macro recovery will remain what it too often has been: a pause between crises, not an exit from them.

In Pakistan, both public and private universities contribute to the higher education system, but over the past decade or so, private universities have become increasingly dominant in terms of demand, especially among middle-class families in urban areas. This shift is mainly due to the concerns about quality, infrastructure, and academic environment in many public institutions. However, the rising fee structures of private universities and their admission policies have created concerns about affordability and fairness.

Private universities in Pakistan have significantly increased their tuition fees over time. Many institutions charge not only tuition but also admission fees, registration fees, examination fees, laboratory charges, technology fees, and miscellaneous administrative costs.

These additional expenses often make the total cost much higher than what is initially advertised. For example, at institutions such as the Lahore University of Management Sciences (LUMS), the annual cost of undergraduate education in some programmes can exceed Rs1.5 million, excluding hostel and living expenses. Similarly, universities such as the Institute of Business Administration (IBA) Karachi, Habib University, SZABIST, FAST National University, Bahria University, and the University of Central Punjab charge substantial semester fees that can range in millions per semester depending on the programme. Even universities that were once considered moderately priced have gradually increased their fees.

For middle-class families, these rising costs have become extremely difficult to manage. While wealthy families can afford these charges, and some low-income students may receive scholarships, the middle class often falls into a difficult gap. They earn too much to qualify easily for financial aid but not enough to comfortably afford continuous fee increases.

As a result, many parents are forced to use savings, take loans, sell assets, or make major sacrifices in their household budgets to support their children’s education. In families with more than one child pursuing higher education, the financial burden becomes even heavier.

The total cost of studying at private universities does not end with the tuition fees. Students must also pay for accommodation, transport, books, internet, and other academic materials.

For those studying in cities away from their homes, hostel and living expenses add a significant additional burden. When all these costs are combined, higher education in private universities becomes unaffordable for a large portion of the population. This situation has raised concerns about equal access to education in society.

Another important issue is admission policies in some private universities. While merit remains a formal requirement, financial capability often plays a significant role in access to education.

In many cases, the students with strong academic records struggle to secure admission because they cannot afford the fees, while the students with weaker academic performance may gain access due to their ability to pay. This raises questions about fairness and equal opportunity. Ideally, higher education should prioritise talent, ability, and merit, allowing students from all backgrounds to compete on equal terms.

At the same time, the admission process and fee structures are often not fully transparent. Many families are not clearly informed about the total cost of a degree programme at the time of admission.

Initial fee announcements may appear manageable, but additional charges and annual increases often make the overall cost much higher than expected. This lack of clarity creates financial uncertainty and makes long-term planning difficult for the parents.

The situation becomes even more worrisome compared with the condition of government universities in Pakistan. Public-sector universities such as the University of Karachi, Punjab University, and other provincial institutions continue to play an important role in providing affordable education.

However, many of these institutions face serious challenges, including overcrowded classrooms, a shortage of faculty, outdated curricula, limited research facilities, and insufficient funding. Laboratories, libraries, and infrastructure in several public universities are often underdeveloped due to financial constraints. These limitations affect the overall quality of education and reduce the students’ exposure to modern academic and industry practices.

As a result, many students and parents prefer private universities despite their high fees, believing they offer better academic environments, modern facilities, and stronger career opportunities. This creates a clear imbalance in the education system.

Public universities remain financially accessible but often struggle with quality issues, while private universities offer better facilities but are increasingly unaffordable for the majority of families.

The rising cost of private education also has wider social consequences. Education is supposed to be a tool for reducing inequality and promoting upward mobility. However, when it becomes too expensive, it risks strengthening social divisions.

The students from wealthy backgrounds continue to access high-quality education and secure better job opportunities, while the students from the middle- and lower-income families face increasing barriers. This can lead to long-term inequality in income, employment, and social status.

There is also a growing concern about student financial stress. Many students take part-time jobs or depend heavily on their families to manage expenses. This financial pressure often affects their academic performance and mental well-being.

Instead of focusing fully on the studies and skill development, the students may spend significant time worrying about fees and expenses. In some cases, they are forced to drop out of university due to financial difficulties.

Another issue is the increasing reliance on student loans or informal borrowing. While loans may help the students complete their education, they often begin their professional lives with financial debt. This can delay important life decisions such as further studies, business investments, home ownership, or family support responsibilities.

Supporters of private universities argue that high fees are necessary to maintain quality education. Modern laboratories, digital learning systems, qualified faculty, research facilities, and international collaborations require significant investment. This argument is valid to some extent, as maintaining high standards does involve high costs.

However, the challenge lies in balancing quality with affordability. Education should not become a luxury only available to a small section of society.

This is where stronger regulation and oversight are needed. The Higher Education Commission (HEC) and relevant government bodies should play a more active role in monitoring fee structures.

Universities should be required to justify significant fee increases and provide full transparency regarding how funds are used. Regular audits and public reporting could help ensure accountability and build trust between the institutions and families.

In addition, clear limits on annual fee increases could be introduced, linked to inflation or other economic indicators. This would help protect families from sudden and unpredictable financial burdens. Universities should also be encouraged to expand scholarship programmes and financial aid opportunities. Merit-based and need-based scholarships should be made more widely available so that talented students are not excluded due to financial limitations.

Admission policies should also be reviewed to ensure fairness. Financial capacity should not outweigh academic merit. Universities must ensure that capable students are not denied access simply because of their economic background. Flexible payment plans and instalment options could also help reduce the immediate financial burden on families.

Improving public universities is equally important. Instead of allowing the gap between public and private institutions to widen further, the government should invest more in upgrading infrastructure, hiring qualified faculty, improving research facilities, and modernising curricula in public-sector universities. Strengthening these institutions would reduce pressure on private universities and make higher education more balanced and inclusive.

Collaboration between the government, private universities, and the corporate sector can also play a role in improving access to education. Industry partnerships, sponsored scholarships, and educational grants can help support the students from lower- and middle-income families. Education should be seen not only as a private investment but also as a national priority that benefits society as a whole.

The rising fee structures of private universities, combined with the challenges faced by the public universities, have created a complex and unequal higher education system. Middle-class families are particularly affected, as they struggle to balance quality education with affordability. Without proper regulation, transparency, and investment in public education, this gap is likely to increase further.

A strong system of checks and balances, along with the expanded financial support and improved public universities, is necessary to ensure that higher education remains accessible, fair, and capable of serving the needs of all segments of society.

Education should remain a pathway to opportunity, not a privilege reserved only for those who can afford it.

The writer is a seasoned journalist and a communications professional.

Today, when critics target the Central Cotton Research Institute (CCRI) or the Pakistan Central Cotton Committee (PCCC), they invariably pose a single question: “The world has advanced so far; why have we lagged?”

However, the fundamental question we must ask is: how did the world reach those heights? Was it merely the seed that guaranteed success for the United States, China, India, and Brazil, or did these nations systematically integrate research, policy, market dynamics, the farming community, and infrastructure into a cohesive value chain?

At its peak, Pakistan’s cotton production approached nearly 15 million bales; today, over recent years, it has plummeted to a mere 5.5 million bales. Attributing this decline entirely to the narrative of a “bad seed” is an evasion of reality.

Leading global cotton producers did not depend on laboratories alone.

Instead, they allocated billions of dollars to research and development, instituted farmer protection mechanisms, stabilised markets, modernised irrigation, promoted mechanised farming, and maintained continuity in agricultural policies.

Presently, China invests over 2.4 percent of its Gross Domestic Product (GDP) into Research and Development (R&D), the United States allocates over 3 percent, Brazil invests approximately 1.2 percent to 1.4 percent, and India similarly spends manifold more on agricultural research than Pakistan. Conversely, Pakistan’s total investment in R&D has dwindled to a negligible 0.16 percent of its GDP.

The dilemma then arises: how can we reasonably compare institutions in nations investing trillions in research—where scientists are equipped with cutting-edge laboratories, sustained funding, advanced genomics, machinery, meteorological data, and robust policy support—with local institutions that occasionally lack the resources even for basic salaries, field trials, fuel, machinery, and fundamental infrastructure? It is equivalent to handing someone a bicycle and expecting them to win a Formula One race.

Crop yield is not determined by genetics alone; rather, it is a product of the interplay between genetics, environment, and management practices (Yield = Genetics × Environment × Management).

Even the highest-quality seed becomes ineffective under poor water quality, extreme heat, substandard spraying practices, imbalanced fertilisation, counterfeit pesticides, market volatility, and flawed policy frameworks.

Unfortunately, the success or failure of cotton in Pakistan has been reduced strictly to the quality of the seed.

If the yield is favourable, the seed is praised; if the crop fails, the research institution is condemned.

• Is it the mandate of research institutes to enforce crop zoning?

• Is a scientist responsible for setting support prices?

• Is the containment of counterfeit pesticides the duty of a plant breeder?

• Do research institutes regulate the pricing of electricity, diesel, fertilisers, and agricultural inputs?

• Is a researcher accountable for ensuring equitable water distribution or stabilising the cotton market?

If farmers are shifting away from cotton toward sugarcane, rice, or alternative crops, the driving forces are economic realities, not merely seed quality.

In countries where cotton cultivation has succeeded globally, governments, policymakers, markets, industry, extension systems, and research institutions operate as a synchronised team.

The tragedy in Pakistan is that when the broader system fails, research institutions become the easiest scapegoats.

The farmer faces financial distress, the industry demands raw materials, and the government grapples with import burdens—yet holding the scientist solely accountable for every crisis lacks intellectual integrity.

Despite severe resource constraints, Pakistani agricultural scientists continue to sustain cotton cultivation amid climate change, emerging viral strains, whitefly attacks, water scarcity, and inconsistent policies.

If these institutions face total paralysis, Pakistan risks losing even the prospect of self-sufficiency in cotton production.

Critique is necessary, and accountability is essential—but both must be governed by fairness. If we aspire to match the standards of China, the United States, India, and Brazil, we must replicate their level of capital investment, policy continuity, farmer-centric environments, market stability, and institutional patronage.

We cite Brazil, China, and India, yet provide resources and facilities comparable to those of Cambodia.

An agricultural revolution cannot be achieved by invoking developed nations rhetorically while operating with developing-world facilitation in practice.

Today, in the backdrop of the plan to build a gymkhana on the research land of the CCRI Multan, certain circles raise questions regarding the performance and utility of the Central Cotton Research Institute (CCRI) Multan.

Such questions are often posed without due regard to historical contributions and the sustained research role that has anchored Pakistan’s cotton economy for decades.

This very institution played a decisive role in delivering the country’s historic bumper cotton crops.

For decades, CCRI Multan remained central to Pakistan’s cotton production and research system.

It has developed more than 40 cotton varieties, most of which consistently secured top positions in national trials.

For a long period, CCRI-developed varieties occupied 60–70 percent of the country’s total cotton cultivated area, forming the backbone of several major bumper harvests.

Even today, the institute continues its work. Last year, Cyto-547 achieved widespread cultivation across Punjab on hundreds of thousands of acres, and its adoption has further increased in the 2026 season.

Alongside this, research on new varieties continues, and within the next two to three years, advanced, high-yielding, and climate-resilient varieties are expected to reach farmers.

The performance of any institution must be evaluated strictly in relation to its available resources, manpower, and financial capacity.

While CCRI Multan holds a strong reputation, its operational funding is extremely limited. On one side, private seed companies generate billions of rupees in business within a single cotton season, while on the other hand, CCRI Multan operates on an estimated annual budget of approximately 250 million rupees.

Meanwhile, around 32 public and private institutions across Pakistan are engaged in cotton research and development, yet accountability is disproportionately concentrated on this single institute.

The operational environment has become so strained that employees and pensioners have faced delays in salaries and pensions for nearly ten months.

Long-standing arrears are being cleared little by little, i.e., drop by drop rather than in lump sums.

Outstanding liabilities exceed 2 billion rupees.

Despite this, scientists and staff continue their work with dignity and restraint, often without publicising their hardships.

Despite these adversities, the Cyto-547 variety has seen extensive cultivation in Punjab, with its area expanding further in 2026—demonstrating that the institute’s research continues to earn the trust of farmers even under severe financial constraints.

CCRI Multan maintains Pakistan’s largest cotton gene bank, comprising more than 6,000 germplasm accessions from 41 countries.

This genetic resource forms the foundation for developing future varieties resistant to heat, drought, viral diseases, whitefly, and other emerging climatic challenges.

Safeguarding such a national asset requires continuous funding, modern infrastructure, and strong scientific oversight—yet the institution continues to face acute financial distress while performing this critical responsibility.

It is rarely acknowledged that CCRI Multan does not receive stable, structured funding from the national exchequer.

Despite this, a public misconception persists that its employees enjoy excessive salaries and facilities.

A closer observation of field and laboratory conditions reveals scientists working under extreme heat with minimal infrastructure and limited resources.

To date, the institute has delivered over 40 cotton varieties to farmers, with nearly 90 percent consistently ranking among the top three in National Cotton Variety Trials (NCVT).

In the 2023 NCVT, Cyto-547 secured first position across Punjab against more than 80 public and private sector varieties.

When capital is constrained, manpower is limited, salaries are delayed, and basic facilities are inadequate, institutional performance must be evaluated with context and fairness.

Despite these constraints, research on multiple new strains alongside Cyto-547 continues, aiming to deliver climate-adaptive, high-yielding varieties within the next two to three years.

Even during prolonged periods of financial hardship, CCRI employees continued working for nearly three years while receiving only 30–40 percent of their salaries.

It is easy to criticise institutions; however, sustained scientific work under severe constraints can only be fully understood by those who live it.

There is an urgent need to address the structural challenges facing CCRI Multan.

A supportive institutional environment must be created, and relevant authorities must allocate adequate resources to sustain cotton research, protect the gene bank, stabilise the institution, and secure Pakistan’s agricultural future.

Weakening the research system will not affect a single institution alone—it will have far-reaching consequences for the entire agricultural and economic ecosystem of the country.

Success in fiscal stabilisation

There has been visible progress in the stabilisation of public finances in the country.

The bottom line in terms of the size of the consolidated budget deficit of the federal and provincial governments is a big containment of this deficit.

It was as high as 7.7 per cent of the GDP in 2021-22. It remained, more or less, unchanged in 2022-23.

The big fall came in 2024-25 when it came down sharply to 5.4 per cent of the GDP, and to the very low level of only 3.0 per cent of the GDP this year, in 2025-26. This is one of the lowest-ever levels of deficit.

The fall in the deficit was due to a marked improvement in revenue generation at the federal level.

The tax-to-GDP ratio jumped up by as much as 1.2 per cent of the GDP, and the non-tax revenue to GDP ratio by 1.4 per cent of the GDP in 2024-25.

The entire reduction of 2.4 per cent of the GDP in the budget deficit was due to this unprecedented jump in revenues.

Simultaneously, the net budget deficit, excluding the debt servicing, was 1.1 per cent of the GDP in 2023-24.

This was converted into a large primary surplus of 2.2 per cent of the GDP in 2024-25.

The further large decline in the budget deficit from 5.4 per cent of the GDP in 2024-25 to the likely level of only 3 per cent of the GDP this fiscal year is apparently due to the expected decline in debt servicing from 7.6 per cent of the GDP in 2024-25 to 5.5 per cent of the GDP in 2025-26.

However, it is not clear as to how this has happened as there has been no marked reduction in interest rates in 2025-26.

Turning to the targets for 2026-27, the expectation is that the consolidated budget deficit will rise somewhat to 3.6 per cent of the GDP from 3 per cent in 2025-26.

This is close to the projection of public finances of Pakistan made by the IMF Staff in the Third Review Report of the ongoing programme.

The projections for 2026-27 are, first, that the net revenues of the federal government will remain unchanged at 8.2 per cent of the GDP.

Total federal expenditure is expected to rise by 0.9 per cent of the GDP.

This will be partly compensated for by 0.3 per cent of the GDP increase in the cash surplus of the provincial governments, leading thereby to an overall increase in the deficit by 0.6 per cent of the GDP.

This brings us to an unprecedented development, as follows:

Provincial grants to the federal government

The federal budget documents reveal that for the first time, the federal non-tax revenues will be augmented by grants/receipts under Article 164 of the Constitution of Pakistan.

This reverse transfer is expected to compensate for the decline in the transfer of SBP profits of Rs 993 billion.

The magnitude of the proposed provincial grants to the federal government is large at Rs 1,035 billion.

Article 164 states that a Province may make grants for any purpose, notwithstanding that the purpose is not one with respect to which a Provincial Assembly may make laws.

The ‘squeezing’ of provincial governments

The new regime of reverse grants from the provincial governments to the federal government has been accompanied by the assumption in the federal budget that the provincial governments will still continue to generate large cash surpluses to restrict the size of the consolidated budget deficit.

The four provincial governments combined are expected to generate a large cash surplus of Rs 1,794 billion in 2026-27. This is 30 per cent more than the likely level this year.

The federal budget documents also reveal that the consequential impact of the generation of large cash surpluses and grants to the federal government will be a big cut in development spending by the four provincial governments combined of over Rs 600 billion, equivalent to a fall of 22.5 per cent.

There is a need to wait for the announcement of the provincial budgets of 2026-27 to see if there is adherence to the targets set by the federal government.

There is the strong likelihood of lower cash surpluses in the presence of large reverse grants to the federal government.

However, this may motivate the provincial governments to mobilise more of their own revenues.

In fact, the IMF Programme includes a ‘resource mobilisation’ effort of Rs 400 billion from own-sources in 2026-27, especially the agricultural income tax.

This implies that if the provincial governments are to get out of the ‘squeeze’ on their revenues, they will have to generate additional revenues of 54 per cent over the previous year’s level.

The Finance Minister, in his budget speech, should have clearly described the big change in inter-governmental fiscal relations by resorting to Article 164 of the Constitution.

Ambitious FBR revenue target

The performance of FBR in 2025-26 has been disappointing.

Tax revenues at the federal level are likely to show a growth rate of only 10.5 per cent, implying a big shortfall of Rs 1,148 billion in relation to the target for the year.

An ambitious target has been set for FBR revenues in 2026-27 of Rs 15,264 billion. This represents a big increase of Rs 2,281 billion over last year’s level, equivalent to a growth rate of 17.6 per cent.

The national tax base is projected to increase in nominal terms by 12 per cent, with a real GDP growth rate of 4 per cent and an inflation rate of close to 8 per cent.

Therefore, FBR revenues will need to show an additional growth of 5.5 per cent.

The surprising aspect of the individual revenue targets is that the growth rates of direct and indirect taxes are, more or less, the same.

The federal budget does not propose any major reforms to raise significant additional revenues.

There are more proposals for several small tax reliefs, which, when combined, would imply a significant loss of revenues.

Overall, the federal budget for 2026-27 has come with several surprises.

These include, first, a new process of transfers of over Rs 1 trillion of provincial grants to the federal government.

Second, an ambitious revenue growth rate of 17.6 per cent has been set for FBR revenues, without any major taxation proposals for generating more revenues and with reliance on unlikely improvements in tax administration.

Third, the provincial governments are being squeezed due to grants to the federal government, leading to a projected fall of over 22 per cent in development spending.

This will be happening at a time when basic services like education, health, water supply and sanitation, etc., need to be greatly expanded.

This is likely to retard the process of human development in Pakistan.

The next article will undertake a more disaggregated analysis of various parts of the Federal budget 2026-27.

On June 14, Prime Minister Shehbaz Sharif posted a simple message on X: “We can confirm that a final, agreed upon text of the peace deal has been reached. Peace has never been as close as it is now.”

Within hours, the world erupted. #NobelPeacePrizeForAsimMunir, #PakistanNobelPeacePrize, #FieldMarshalAsimMunir and #CDFDidItAgain began trending globally. Google Trends reported a sharp surge in searches like “Asim Munir Trump” and “Pakistan Munir” from the United States, Israel, China, and the United Kingdom.

For the first time in months, the common man dared to hope that his monthly budget might stop bleeding.

The economic lifeline

Why does a peace deal in the Middle East matter to a family in London, Lagos, or Lahore? The answer is 25% — the share of the world’s seaborne oil that passes through the Strait of Hormuz. Since the war erupted on February 28, the strait has been effectively closed.

The consequences were brutal. Brent crude surged from around $72 per barrel before the strikes to approximately $96 by late May. US inflation hit 4.2%. Energy prices soared, supply chains snapped, and families everywhere felt the squeeze.

But when the peace deal was announced, oil prices dropped sharply — US crude futures fell approximately 1.6%.

The financial markets have already started responding positively, spurring hopes that lower energy prices would cool down inflation and have a knock-on effect on the overall life of common citizens.

British Prime Minister Keir Starmer put it plainly: freedom of navigation in the Strait must be restored “to begin easing the severe economic impacts that have been felt for several months — on families here in the UK and around the world”.

The world reacts

The applause from global capitals has been thunderous — and remarkably bipartisan.

UN Secretary-General António Guterres expressed “deep appreciation” for Pakistan’s constructive role, calling the deal “a critical step towards the peaceful settlement of the conflict”.

Turkish President Recep Tayyip Erdogan went further, declaring: “I thank Pakistan for its exceptional mediation efforts”.

German Chancellor Friedrich Merz said the deal “can pave the way towards a reinvigorated global economy and a more secure Middle East”.

French President Emmanuel Macron acknowledged the agreement was “the result of a diplomatic effort to which several partners have contributed”.

Japanese Prime Minister Sanae Takaichi “highly commended the efforts of the relevant countries that have played a mediating role”.

Australian Prime Minister Anthony Albanese and Foreign Minister Penny Wong, in a joint statement, “commended the efforts to date of Pakistan, Qatar, Saudi Arabia, Türkiye and other mediating countries”.

Italian Prime Minister Giorgia Meloni posted: “A heartfelt thanks goes to all the mediators, and in particular to Qatar and Pakistan, who have made this agreement possible”.

The Field Marshal’s masterclass

At the heart of this success is Field Marshal Syed Asim Munir, Chief of Army Forces and Chief of Defence Forces. His high-stakes visit to Tehran proved to be the decisive turning point.

The talks had collapsed at least three times prior to his intervention. Mediation efforts by the European Union and the United Nations had failed to break the deadlock. But Field Marshal Munir did something his predecessors could not. According to diplomatic sources cited by Anadolu Ajansı, Pakistan worked silently to find a “new formula” to break the stalemate. The breakthrough came in the form of a phased approach that neither Washington nor Tehran had previously accepted.

Specifically, Pakistan reportedly proposed a phased approach — Iran would reopen the Strait of Hormuz immediately in exchange for the US lifting oil sanctions and releasing frozen assets, while the thornier issue of Iran’s nuclear programme would be deferred to a 60-day technical window. This “strait first, nuclear later” sequencing broke the psychological barrier that had paralysed diplomacy for nearly two years.

In a statement that sent ripples through diplomatic circles, US President Donald Trump openly lauded the Pakistani military leadership. According to reports, the American president acknowledged the “highly instrumental role” played by Pakistan in bridging the political gulf between the two nations, praising the “exceptional efforts” that brought the deal across the finish line.

The intensive two-week mission in Tehran involved consecutive meetings with Iranian President Masoud Pezeshkian, Foreign Minister Abbas Araghchi, and Parliament Speaker Mohammad Bagher Ghalibaf. By the time it concluded, a finalised diplomatic draft had been transmitted to both authorities.

A historic legacy

International media have drawn direct parallels to 1971, when Pakistan facilitated Henry Kissinger’s secret trip to Beijing that reshaped the Cold War. More than five decades later, Pakistan has effectively replicated its own historic legacy — proving that its geopolitical value as a global stabiliser remains undiminished.

Former US intelligence and diplomatic officials reportedly acknowledged that without Pakistan’s intervention, the region could already have witnessed a devastating confrontation involving multiple countries.

A fragile but lasting peace

Is the danger over? Capital Economics, a London-based leading independent macroeconomic research consultancy, and market analysts like Ole Hansen of Saxo Bank urge caution. Hansen noted that “after more than 30 similar announcements over the past couple of months, investors have become increasingly cautious”. The deal reportedly includes a 14-point draft agreement: Iran pledges to reopen the Strait of Hormuz within 30 days, the US would lift oil sanctions and unfreeze Iranian funds, and the US and allies would present reconstruction plans for Iran.

The official signing ceremony is scheduled for June 19 in Geneva, Switzerland.

The bottom line

A nation once dismissed as unstable has proven to be the world’s most effective peacemaker. Pakistan didn’t fire a bullet. It fired a solution.

Tonight, the world breathes easier. And for the common man, the monthly budget may finally stop stretching to its breaking point.

Thank you, Pakistan.

The writer is a seasoned journalist covering the economy and international affairs.

This is not a pro-growth budget, nor an expansionary one. Overall development spending, federal and provincial combined, is set to decline. The fiscal space that has been created is being redirected largely toward a narrow elite whose consumption patterns will not meaningfully move the growth needle. At the federal level, this is a relief budget, and one that is, on paper, being financed by cutting provincial development spending.

The government is attempting to address a structural flaw in fiscal federalism, but through unconventional means. The IMF noted, as far back as its 2017 special report that Pakistan’s fiscal system is “somewhat unique compared to other countries”, a uniqueness rooted in the substantial asymmetry produced by the 7th NFC Award, where the provincial share in revenue far exceeded their share in resource mobilisation.

For years, the federal government has done the heavy lifting on revenue generation while provinces have spent lavishly. The provincial surpluses generated in recent years have largely remained parked with the provinces, eventually financing federal fiscal gaps by flowing into T-bills. These accumulated surpluses are dry powder, held in reserve to be deployed once the IMF programme ends.

The FY27 budget attempts, on paper, to correct this by transferring just over Rs1 trillion to the federal government. This creates room for Islamabad to lower taxes without cutting expenditure, while maintaining the targeted fiscal balance. There are, however, technical complications. Provinces receive their full revenue share until FBR collections reach Rs13.35 trillion, beyond which the incremental share is transferred as a grant to the federal government. If the FBR misses its target, provinces retain full revenue exposure rather than the standard 43 per cent. The arrangement also rests on voluntary provincial cooperation, which is not a structural fix.

The federal government has used this space to provide relief to segments of the formal, affluent, and middle-income population, including salaried individuals whose tax burden was raised sharply and disproportionately in recent years. They are paying less than before, though still more than they were in 2022. Exporters will see better earnings on paper. But there is little in this budget to drive investment in productive capacity. No one appears keen to commit to new projects.

The affluent will spend more, likely on imported goods and services. Salaried households will have marginally more disposable income. But neither creates the kind of demand multiplier that shifts growth trajectories. And for the poor and the informal lower- and middle-income classes, there is essentially nothing. Whatever benefit trickles down will barely offset the direct and indirect costs of higher petroleum levies already in the pipeline.

The FBR’s targets are ambitious to the point of implausibility. Direct tax collection is projected to grow by 18.3 per cent against nominal GDP expansion of 13.2 per cent, and this while offering

reliefs. Customs duty is expected to increase by 20 per cent even as the SBP continues to discourage non-essential imports and trade tariffs trend downward. The arithmetic does not hold together comfortably.

When the gaps materialise, and they likely will, the pressure will fall back on the FBR to perform. That means squeezing the formal sector further: demanding advance payments, applying coercive collection measures, and revisiting the same taxpayers who are currently celebrating. The jubilation of the affluent may prove short-lived.

Meanwhile, the government has significant room to increase petroleum levies without passing through the full impact to consumers, particularly if a prospective Iran-US deal keeps oil prices contained. Other forms of indirect taxation remain available. These instruments, when deployed, land hardest on those least able to absorb them.

This budget has been received as a turning point by a small group of people looking only at the relief side of the ledger. They are not accounting for the other side. The relief is real, but it rests on paper targets.

When those targets are missed, as they have been in prior cycles, the IMF will push for enforcement, and the government will reach back into the same pockets it has just partially emptied, while leaning on indirect taxes that compress the living standards of ordinary Pakistanis.

Caution is warranted. Some inflationary consequences are likely. The central bank would be wise to maintain its hawkish stance.

These expectations were reaffirmed a couple of hours before the budget was presented to parliament by Prime Minister Shehbaz Sharif during his televised address after formal cabinet approval of the budget as he praised his brother, the leader of his party, his niece, the Chief Minister Punjab, the leadership of the Pakistan Peoples’ Party as well as the Balochistan and last, but perhaps not least, the Khyber Pakhtukhwa governments for cooperating with the Centre in agreeing to key budgetary proposals. The declaration by Finance Minister Muhammad Aurangzeb that this measure has been postponed till next year raises questions about whether he will be able to deliver on this pledge when he clearly failed to get a consensus on other aspects of this year’s budget that required the intervention of the hybrid government as well as a 30- to 40-minute-long chat between the Prime Minister with the Managing Director of the International Monetary Fund (IMF).

Nonetheless, the budget does envisage generating about a trillion rupees more from the provinces in the current year – a rise that from an economic point of view cannot be supported: a rise in provincial surplus from 1379 billion rupees (revised estimates of 2025-26) to 1794 billion rupees in 2026-27 that would generate an additional 415 billion rupees for the Centre. And a reduction in the provincial budgeted allocation for development from 2.869 trillion rupees in the budget last year to 2.224 trillion next year, or an additional 649 billion rupees that would accrue to the Centre.

Two observations are relevant. First, this accrual will be spent by the Centre on current non-development expenditure, accounting for 93 per cent of the total budget 2026-27, like last year, which is anti-growth and inflationary to boot as it is not backed by a rise in output. And second, it will further slow down any move towards devolution, a policy that seeks to meet the needs/requirements of local communities. Instead, the Centre will take over project decision-making from the next tier of government, i.e., the provinces, though one may assume that the more politically well-placed a party maybe the more the Centre will heed their demand for specific projects.

The question is: is there anything different about the budget from previous ones? There are five takeaways that show that little has changed in the budget.

First, the reliance on external borrowing is to rise to 23.3 billion dollars next year (at 290 rupees to the dollar parity) against the 19.9 billion dollars budgeted for the outgoing year, but at last count, only 11.068 billion dollars had been received in 2025-26 – an inflow that surely must be a source of concern to the government. This perhaps explains why the Finance Minister was at great pains during the unveiling of the Economic Survey a day before the budget presentation to emphasise the enhanced access to commercial borrowing, Panda ponds (only 250 million dollars equivalent have been issued) and issuance of other debt equity instruments like Sukuk and Eurobonds. Total debt, including domestic debt and mark-up, is budgeted to rise next year by 16 per cent – from the revised estimates of 6.9 trillion rupees to next year’s 8.05 trillion rupees.

Not included in the debt figures noted above, but a debt nonetheless, is the estimated closing guaranteed debt position for the issuance of contingent liabilities on 30 June 2025, estimated at 3.950 trillion rupees in last year’s budget, understated by 372 billion rupees as per the 2026-27 budget documents. The envisaged rise till 30 June 2027 is 5.005 trillion rupees or a rise of 16 percent.

Second, all components of current expenditure were raised and reflected the inability of the elite to show a reduction through either: (i) implementing reforms, pensions budgeted to receive 1.16 trillion rupees next year as opposed to 1.05 trillion rupees in the outgoing year, though

facetiously the documents note a 10 billion rupee pension fund though it is not clear whether this fund is set up at the taxpayers’ expense or whether this is the outcome of the policy announced last year that envisages employee contribution effective for only new entrants. Defence was also upgraded by 412 billion rupees, though the bulk of this was for operational expenses due to the uptick in terror attacks (and one would assume the 7 per cent pay raise for all state employees).

Third, the budgeted development outlay is contained at one trillion rupees in 2026-27, the same amount as budgeted in 2025-26. However, actual disbursement by the Finance Ministry (as opposed to the authorisations by the Planning Ministry) in the outgoing year has to-date been less than 50 percent. The allocations are indicative of a long-standing PML-N philosophy, notably big infrastructure projects will promote development as well as the party’s popularity. Sadly, here too the focus remained on roads rather than on water reservoirs, given that the country is now defined as severely water stressed.

Fourth, Federal Board of Revenue tax collections are budgeted to rise by 17.5 percent to 15.26 trillion rupees – the 2025-26 budgeted FBR collection was 14 trillion rupees that was revised downward to 12.9 trillion rupees (though FBR sources have revealed that the shortfall may still be in excess of 800 billion rupees). This indicates that the tax target, in yet another budget, is unrealistic.

In addition, the bulk of the government revenue is to be from sales tax whose incidence on the poor is greater than on the rich. It includes 4.9 trillion rupees under the head of sales tax, and another 5.3 trillion rupees from withholding taxes levied in the sales tax mode but credited under income tax (a practice that FBR does not desist from in spite of exhortation by the Auditor General of Pakistan). And kept outside the purview of the FBR (to ensure that it is not part of the divisible pool and therefore to be shared with the provinces) is the petroleum levy budgeted to generate 1.67 trillion rupees next fiscal year. In effect, the burden on the public through these three sales tax sources will be 11.8 trillion rupees next year – a fact that undermines the adequacy of the 838 billion rupees budgeted for the Benazir Income Support Programme, especially given poverty rate of 44 percent, if measured as per the calorific value.

And finally, the 4 percent growth next year may have to be revised downward given the severely contractionary monetary and fiscal policies in place due to the IMF’s harsh and upfront conditions and in the words of the Annual Budget Statement 2026-27 “a one percentage point decline in real GDP growth could lower government revenues through reduced tax collections, while also increasing expenditure pressures, particularly on social safety nets.”

Well, it is yet another year of stabilisation. Nothing else. As someone aptly put it, the economy is being kept in an induced coma without the needed operation.

That is the art of economic management of the current team.

They say the glass is half full. However, almost every other stakeholder sees it as half empty — evident from investment-to-GDP hovering at a low rate of 13-15 percent. FDI is at a record low.

Unemployment is creeping up, and inflation is on the rise again after coming down to SBP’s medium-term range of 5-7 percent.

Call it stabilisation or stagflation — the bottom line is that the misery of the common man is nowhere close to over enough to appreciate the encouraging picture presented by the government.

The finance minister wants investment to be in the high teens and desires local investment to take the lead, with foreign investment to follow.

He knows the solution lies in lower taxation, energy, and financing costs.

He is looking at the finer points of doing away with regulatory hurdles and has emphasised policy consistency.

The only consistency about him is repeating all the pep talks, but without delivery.

Taxation on formal corporates and individuals — including all super taxes and surcharges — has only moved up in this regime and is currently at the highest-ever level in history.

Financing cost has come down over the last year, but there is not much liquidity left in the system to lend to the private sector, as the government borrows it all.

Now, the private sector and free-market champions are talking about boosting concessionary finance as the way to go.

Well, not many years ago, they bashed the subsidy model presented by the previous regime — perhaps the next may say the same for the incumbents.

They talk about the decline in the debt-to-GDP ratio.

However, they have little to say about the problem of the propensity to service debt.

They do not talk much about growing domestic debt beyond the banking sector’s capability, as SBP’s OMO injections have quadrupled in the last three years to over Rs15 trillion.

They blame external factors for worsening macro indicators lately.

They are right. Indeed, the situation has changed after the Iran-US war.

However, they have a role to play, as overreliance on the petroleum levy in days of skyrocketing international oil prices has contributed to jacking up inflation, which pushed the SBP to increase the policy rate and, in turn, increased the government’s debt-servicing bill.

That leaves less room for fiscal accommodation.

There is nothing to talk about on tax reforms. When the question was posed to the FBR chairman, he used his intelligence to outsmart the reporter by framing the answer in absolute numbers.

They explain numbers in dollars in days when the currency is overvalued, which may change in a jerk when there is a jerk in the currency.

However, he had no concrete response to the tax shortfall of Rs2.2 trillion in the last two years.

The finance team has no answer to its inability to expand the tax base and bring traders and others into the tax net.

The story is the same. Live day by day. Comply with IMF targets by taxing the same base and ask for more time before we can think of growth, as next year’s growth is likely to be below 4 percent too.

Having said that, one may appreciate that the government is not making silly mistakes, as a few previous regimes did.

But the question is for how long, as the patience of the powers that be is said to be wearing thin and stabilisation fatigue is seeping in. And the only thing that can change this is tax reform.

Let’s see what the government has in its kitty today to positively surprise us in the budget speech.

Let’s hope against hope.

The delay has increased public interest across the country, especially among salaried individuals, pensioners, businesses and low-income households who are expecting significant relief.

For ordinary citizens, the federal budget is a document that directly affects daily life. It determines how much tax people will pay, what subsidies they may receive, and how much will be spent on basic services such as health, education, transport and development. Every year, the public waits for the budget because its decisions influence household expenses, food prices, electricity bills, job opportunities and the overall economic stability. This year, expectations are particularly high as families continue to deal with the financial pressure, despite some signs of economic recovery.

According to the National Economic Council (NEC) approved macroeconomic framework for the Federal Budget 2026-27, the government has set a total budget outlay of around Rs17.1 trillion. This reflects the overall size of federal spending, including debt servicing, defence, development programmes and administrative costs. Within this broader framework, development planning has also been structured to support medium-term growth and stability.

The NEC has also approved a GDP growth target of 4% for the upcoming fiscal year. This indicates a cautious but positive expectation of economic recovery. The target suggests that the government is aiming for gradual expansion in industrial output, agriculture performance and services sector growth. However, achieving this target will depend on the global economic conditions, domestic stability and the success of policy measures introduced in the budget.

Inflation remains a key concern for the policymakers and citizens alike. The NEC framework sets an inflation target of around 8.2%, reflecting an attempt to keep price increases within a manageable single-digit range. While this represents an improvement, compared with the high inflation levels seen in previous years, it still means that the prices of essential goods and services are expected to rise, albeit at a slower pace. For ordinary households, even moderate inflation continues to put pressure on monthly budgets.

The fiscal position remains tight. The approved framework indicates a fiscal deficit target of around 5% to 5.5% of GDP. This means that the government is still expected to spend more than its total revenue, relying on borrowing and other financing sources to bridge the gap. While this level of deficit is seen as relatively controlled under the current conditions, it still reflects the challenges of balancing development needs with fiscal discipline.

For salaried individuals, the most important question is whether this budget will bring real financial relief. Over the past few years, inflation has significantly reduced the purchasing power, making it increasingly difficult for the middle-income families to manage expenses. Many salaried people are expecting revisions in income tax slabs, an increase in the minimum taxable income threshold, or reductions in tax rates for the middle-income groups. If such measures are introduced, they could allow households to retain more of their income, improving consumption and overall economic activity.

Government employees and pensioners are also closely watching the budget. Fixed incomes have been heavily affected by rising prices of food, transport and utilities. There is widespread expectation that the salaries and pensions may be adjusted to reflect inflation trends. Even a moderate increase would provide relief to millions of families struggling to meet basic needs such as healthcare, education and daily household expenses. However, the government must carefully balance such adjustments with its limited fiscal space.

The low-income households remain the most vulnerable segment of society. For many families, basic items such as flour, cooking oil, electricity and rent consume the majority of their income. In this context, expectations are high for expanded social protection programmes.

Strengthening cash transfer schemes, food subsidies and targeted welfare initiatives could help reduce poverty and provide support to those most affected by the economic hardships. These programmes are particularly important in rural areas and densely populated urban settlements where unemployment and informal work are widespread.

Investors and entrepreneurs have long argued that Pakistan needs a more stable and predictable tax environment to encourage growth. Businesses are hoping for reduced tax burdens, simplified regulations and stronger incentives for investment.

If the government introduces supportive measures for industry, exports and small and medium enterprises, it could lead to job creation and increased economic activity. This would not only benefit investors but also improve employment opportunities for the young people entering the workforce.

Another important area of focus is public sector development and service delivery. Citizens continue to express concerns about the quality of healthcare facilities, overcrowded schools and inadequate infrastructure. Increased allocations for education, health and development projects could help address these longstanding issues. Better schools would improve literacy and skills development, while improved healthcare systems would ensure wider access to medical services. Investments in roads, water supply systems and urban infrastructure would also improve daily life and support economic growth.

Agriculture remains the backbone of Pakistan’s economy, employing a large portion of the workforce. Farmers are currently facing rising input costs, climate-related challenges and unstable market prices. The budget is expected to include measures such as fertiliser subsidies, improved irrigation systems and better access to agricultural credit. Strengthening the agriculture sector would not only increase rural incomes but also help stabilise food prices across the country, benefiting consumers in both urban and rural areas.

The information technology sector is another area with strong growth potential. Pakistan’s IT industry has expanded rapidly in recent years, driven by freelancers, software developers and export-oriented companies. There is growing expectation that the budget will introduce incentives for IT startups, digital infrastructure and technology exports. Supporting this sector could generate high-skilled employment, increase foreign exchange earnings and reduce reliance on traditional industries.

There are also concerns about possible challenges in the budget. The government is under pressure to meet revenue targets, while also managing heavy debt repayments. This may lead to the introduction of new taxes or the expansion of existing ones. While direct taxes generally affect higher-income groups, indirect taxes can impact all the consumers by increasing the prices of goods and services. This remains a major concern for households already struggling with the rising living costs.

Energy prices are another sensitive issue. Electricity, gas and fuel costs continue to be a major burden for both households and businesses. There is a possibility that subsidies may be reduced further to improve fiscal stability and meet financial targets. While such measures may strengthen the economy in the long-term, they can increase short-term financial pressure on citizens. Higher energy costs also affect transportation and production, which can lead to increased prices of everyday goods.

Many citizens are hoping for significant relief through tax cuts, salary increases and expanded welfare programmes. However, given the fiscal deficit target of 5% to 5.5% of GDP and the overall budget constraints, the government may not be able to meet all the expectations.

If the final measures fall short of public hopes, disappointment may follow, even if some improvements are delivered.

Inflation, although lower than previous peaks, remains a key concern. The target of 8.2% indicates moderation, but prices are still expected to rise. If government spending increases without careful control, there is always a risk of renewed inflationary pressure. For ordinary citizens, price stability is often more important than headline economic figures. Even small increases in food or utility costs can significantly affect the household budgets.

Small and medium enterprises also face serious challenges. These businesses are important for employment generation and economic activity but often struggle with taxation, compliance costs and access to finance. Without targeted support, many SMEs may find it difficult to expand or even sustain operations. Supporting this sector is necessary for inclusive growth and long-term economic stability.

The government, therefore, faces a difficult balancing act. On the one hand, it must provide relief to the citizens who have endured years of financial hardships, and on the other, it must maintain fiscal discipline goals.

The success of the Federal Budget 2026-27 will depend not only on its numerical targets but on its real impact on ordinary citizens. If it succeeds in reducing financial pressure, improving public services and supporting job creation, it will be seen as a positive step forward. However, if rising costs continue to outweigh the benefits of policy measures, public frustration may persist.

The writer is a seasoned journalist and a communications professional.

Diplomatic relationships have been strained. International organisations have warned that higher energy and transport costs could worsen food insecurity across vulnerable regions. Yet another question is now beginning to emerge in financial markets. Could this conflict also be interfering with the very interest-rate cycle that helped fuel the artificial-intelligence boom?

At first glance, the connection appears tenuous. One concerns geopolitics and energy markets.

The other concerns technology, venture capital and equity valuations. Yet financial markets rarely separate developments as neatly as investors do.

Energy prices remain highly sensitive to developments around the Strait of Hormuz.

Although crude has retreated from its peaks whenever reports of diplomatic progress emerge, traders continue reacting sharply to headlines from the region.

Around a fifth of globally traded oil normally passes through the waterway, and even temporary disruptions can reverberate through inflation expectations, bond markets and central-bank thinking.

That matters because oil has a habit of leaking into every other price in the economy.

Higher fuel costs eventually influence freight, manufacturing, fertiliser, aviation and food.

Central banks can often look through short-term volatility. Sustained energy shocks are considerably harder to ignore.

Before the conflict, investors broadly anticipated a significantly easier monetary-policy path.

The debate centred largely on the pace of future rate cuts. Inflation appeared to be moderating. Financial conditions remained supportive.

The assumption underpinning much of the optimism in financial markets was that the era of aggressive monetary tightening was drawing to a close.

The Iran war complicated that outlook.

Bond yields have moved higher as markets reassess inflation risks and the possibility that central banks may need to remain restrictive for longer than previously expected. Rate-cut expectations have become less certain.

The discussion is no longer focused solely on how quickly policymakers can ease.

Investors are again debating how persistent inflationary pressures may prove to be if energy markets remain vulnerable to geopolitical shocks.

And that shift may ultimately matter more for technology valuations than any single earnings report.

The AI boom has depended on extraordinary optimism about future growth. Investors have been willing to value companies on earnings projections stretching many years into the future.

That process becomes more difficult when the cost of money rises. Higher interest rates reduce the present value of future cash flows.

They also increase the hurdle rate for the enormous sums now being committed to AI infrastructure.

The scale involved is remarkable. Major technology companies continue committing hundreds of billions of dollars to data centres, chips, energy infrastructure and AI development.

Analysts have projected trillions of dollars of cumulative AI-related investment over the coming decade.

At the same time, some of the most anticipated technology listings in the world are expected to command valuations measured in the trillions.

None of this proves that a bubble exists. Artificial intelligence may ultimately justify every dollar being invested in it. Productivity gains could exceed expectations.

Entire industries may be reshaped. Revenue growth may eventually validate today’s aggressive forecasts.

Yet has the market perhaps become accustomed to asking only one side of the question?

For years, economists, traders and academics have debated whether the AI boom contains elements of speculative excess. The disagreement was rarely about the technology itself.

The real argument concerned valuation, expectations and timing. If enthusiasm eventually outran reality, what would expose it? What event could force investors to revisit assumptions that had become deeply embedded in market pricing?

Few would have pointed to a conflict in the Middle East.

Yet an energy shock that alters the interest-rate outlook can eventually reshape the pricing of assets that appear entirely unrelated to oil.

A disruption in one corner of the global economy often exposes vulnerabilities elsewhere.

Markets that were comfortable with pricing years of future growth under one set of monetary assumptions may suddenly find themselves operating under another.

Recent market behaviour suggests investors are at least beginning to grapple with that possibility.

Technology shares have become noticeably more sensitive to interest-rate expectations. Bond-market moves increasingly command as much attention as corporate earnings announcements.

Strong economic data that might once have been welcomed now sometimes triggers concern because it reduces the likelihood of near-term monetary easing.

Could that be the signal worth watching?

Perhaps the AI rally resumes its ascent, and this latest scare fades into memory. Perhaps diplomacy succeeds, oil prices stabilise, and inflation pressures ease.

Perhaps central banks regain the flexibility investors expected at the start of the year.

But if the Iran war has already exposed vulnerabilities in supply chains, energy markets, diplomatic relationships and inflation expectations, is it unreasonable to ask whether it may also have disturbed the foundations supporting the market’s most crowded trade?

That may ultimately be the most ironic consequence of all. A war launched for geopolitical reasons could end up influencing the financial conditions that helped sustain one of the greatest investment booms of the modern era.

The question is whether markets are witnessing a temporary interruption to the AI story, or the beginning of a broader reassessment of the assumptions that made the story possible in the first place.

When the United States and Israel launched their joint strikes on Iran on February 28, the prevailing assumption in Washington and Tel Aviv was straightforward: a swift, decisive campaign to dismantle Iran’s nuclear programme, degrade its military capacity, and restore the old order in the Middle East — one in which Iran knew its place. One hundred days later, that assumption lies in ruins. Iran has not been broken. It has, paradoxically, been elevated.

The Islamic Republic that was once regarded as a declining, sanctioned, internally fractured state has emerged from this war as the most consequential power in the region — not despite the American and Israeli assault, but partly because of it.

A reluctant superpower

A year ago, the idea of Iran directly and repeatedly striking Israeli territory would have seemed far-fetched. The calculus was simple: Iran’s deterrence rested on proxies — Hezbollah, the Houthis, various Iraqi militias. Direct confrontation with Israel, let alone a nuclear-armed one backed by the United States, was considered suicidal.

That calculus has been shattered.

Iran launched ballistic missiles at central and southern Israel this week, triggering Israeli air defences, after Israel renewed strikes on southern Lebanon in what Tehran said was a violation of the ceasefire. Israel retaliated by targeting a petrochemical plant inside Iran. The two countries are now trading strikes with a regularity that would have been unimaginable twelve months ago — and Iran is doing so without existential panic. It is calibrating, warning, and withdrawing on its own terms.

This is not the behaviour of a defeated state. This is the behaviour of a regional power that has learned, under fire, that it can absorb punishment and survive.

Trump’s uncomfortable position

Perhaps the most telling indicator of Iran’s new leverage is the posture of Donald Trump himself.

Trump called on Israel and Iran to “immediately stop shooting” on Monday, posting on Truth Social: “Both sides, Israel and Iran, are looking to do an immediate ceasefire!” The language is telling. This is not a commander dictating terms to an adversary. This is a president pleading for restraint — from both sides equally, including from his own closest regional ally.

Trump told Axios that Iran had contacted him directly, saying they would stop shooting if Israel backed off. “They called us and said that they are not doing any more attacks and asked us to tell Israel not to do any more attacks,” Trump said. Think about what that means. Iran is now giving Washington instructions on how to manage Israel.

This is a remarkable inversion of the regional order. The US, which launched this war, is now acting more as a mediator than a belligerent. And Iran is exploiting every inch of that space.

The art of the stall

Iran has also proved itself a shrewd negotiator — or, more precisely, a masterful procrastinator.

According to Axios, US and Iranian negotiators reached an agreement on the terms of a deal in Doha, but Trump did not immediately sign off.

“The president relayed to the mediators that he wants a couple of days to think about it,” a US official said.

Meanwhile, a senior Arab official involved in the mediation told NBC News the delays were “frustrating,” describing the situation as “everyone playing a game of chicken and egg.”

Tehran has good reason to drag its feet. Every week that passes without a deal is a week in which Iran consolidates its new status.

Every Israeli strike on Lebanon that Iran responds to is a demonstration that it can project power and defend its allies. And every time Trump publicly frets about the pace of talks, Iran’s hand strengthens.

Trump has sent decidedly mixed messages. On Monday, he said he “couldn’t care less” if negotiations collapsed, only to post on Truth Social hours later that talks were “continuing, at a rapid pace.” The vacillation has not gone unnoticed in Tehran.

The midterm clock

Iran understands something that its adversaries are reluctant to admit publicly: Donald Trump is fighting on two fronts. One is in the Middle East. The other is domestic.

The 2026 midterm elections loom, and a war with no end in sight is politically toxic. Trump staked his reputation on being the president who ends wars, not the one who starts them. The Iran conflict, now at 100 days, is already longer than he anticipated. As one Washington Post opinion piece noted, Trump “desperately needs” a peace deal, and his short attention span “constantly bungles his political aspirations.”

Iran, by contrast, is not running for anything. The supreme leader does not face a midterm election. Tehran can afford patience in ways that Washington simply cannot.

The limits of air power

There is a deeper lesson here that the architects of this campaign should reckon with honestly. Air power can destroy infrastructure. It can kill military commanders. It can set back a nuclear programme by months or years. What it cannot do — as Iraq, Afghanistan, Libya, and Syria have all demonstrated at enormous cost — is reshape a country’s political identity or eliminate its will to resist.

Iran in 2026 is proof of this once again. The strikes have not produced a compliant Tehran. They have produced a more confident one.

A new Middle East

The region that emerges from this war, whatever the final diplomatic settlement, will not resemble the one that existed before February 28. Iran has demonstrated that it can absorb a US-Israeli military campaign, maintain its alliances, strike its enemies directly, and negotiate from a position of strength.

That is the definition of a regional power. Not the Iran of a year ago — sanctioned, isolated, and quietly declining. But an Iran that the Middle East and Washington will have to accommodate for years to come.

The war meant to cut Iran down to size may well have done the opposite.

The writer is a seasoned journalist covering the economy and international affairs.

The budget, expected to be announced this Friday, will, therefore, have few surprises for two reasons: (i) the third review of the Extended Fund Facility (EFF) and the second review of the Resilience and Sustainability Facility (RSF) documents were uploaded on the Fund website on 15 May – two days after the arrival of the mission to review the budget – detailing time-bound conditions and structural benchmarks agreed with the authorities till the next mandatory quarterly review scheduled for 15 September. The envisaged disbursement, subject to reaching a staff level agreement, is 760 million SDRs under the EFF and 76.9 million SDRs under the RSF; and (ii) budget formulators typically disclaim responsibility for almost 75 to 80 per cent of the budgeted allocations on the grounds that they are taken by the elite/influentials and, when the country is on a Fund programme, by the IMF.

The annual raise in total budgeted outlay is premised on a very optimistic projection of the Gross Domestic Product (GDP) growth rate. Post-Covid 19, with the exception of 2021-22, the growth rate has been well below projections, given that the country has been on a rigid upfront IMF programme since 2019, this has implied slashing the Public Sector Development Programme (PSDP) to meet the deficit targets agreed with the Fund. Sadly, this has been the practice during nearly all the Fund programmes. Pakistan is currently on the twenty-fourth programme, yet, over time, as was to be expected, the PSDP actual disbursement has been shrinking in terms of the percentage budgeted allocation – the July-April 2026 rate is at a low of 51 per cent.

The misalignment between the PSDP authorisations (by the Planning Ministry) and the actual disbursement (by the Finance Ministry) may indicate: (i) the Planning Ministry distancing itself from the lower disbursements than budgeted (though it is the Ministry’s responsibility to present more realistic allocations, given the shrinking fiscal space); and/or (ii) it may be an attempt to showcase the failure of the Finance Ministry to fund development and instead to continue to prioritise the outlay for current expenditure.

The focus has remained on ensuring that the current expenditure requirements are met.

The major component of this is the mark-up on loans budgeted at a little over 50 per cent of the total current expenditure in 2025-26 – an outlay which, if not released, would have serious economic consequences. This is lower than what was realised in 2024-25 – at 54.5 per cent – though it was budgeted at 56.8 per cent of total current expenditure, with the difference in total terms being 813 billion rupees.

The lower outlay for mark-up this year was not due to lower envisaged borrowing but lower borrowing costs – rescheduling past loans, which lengthened the period but lowered the actual interest payment and the anticipation of a lower policy rate by December last year (a rate that had to be raised due to the Middle East conflict – so much for its effects remaining contained).

In this context, it is relevant to note that the 1.25 trillion rupees borrowed from the 16 commercial banks to retire the circular debt was, after IMF approval, not included in the mark-up and defined as a one-off.

In total terms, the budgeted mark-up in 2024-25 was higher by 829,666 billion rupees than what was realised at the end of the year due to a lower policy rate over the year as well as rescheduling.

The budget documents for the next fiscal year, 2026-27, would indicate by how much this expenditure item exceeded the budgeted amount.

Defence as a percentage of current expenditure was 15.62 per cent of total current expenditure 2025-26, while last year it was at 13.3 per cent (with the budgeted amount under this head lower by 2.3 per cent).

The rise may well be due to higher operational costs due to ongoing terror attacks; however, it is relevant to restate that the actual current expenditure as per budget documents for last year declined by 813 billion rupees.

Running civilian government rose to 5.9 per cent of total current expenditure in the current year’s budget against 5.4 per cent in last year’s revised estimates due to massive pay rises at the taxpayers’ expense.

Pensions rose from 1.014 trillion rupees in the revised estimates of last year to 1.055 trillion rupees this year, money dedicated for public sector pensioners and does not include the 93 per cent of those who are engaged in the private sector.

While the government has made employee contributions mandatory since last year, greater clarity is required as to whether this amount is being set up in an escrow account or a pension fund, or whether the money is being fungible, the government is using it for meeting its expenses, which may have some consequences down the line.

Benazir Income Support Programme (BISP) received less than 5 per cent of the current outlay as per the Fund’s insistence, though the beneficiaries that have been identified through a scientific method of selection do not constitute the rising number of unemployed as a consequence of the Fund’s severely contractionary monetary and fiscal policies, nor take cognisance of the rising poverty levels through the calorific method.

Revenue is to be generated from (i) raising indirect taxes (sales tax in particular) with the rationale that the GST C-efficiency ratio (actual revenue collection from goods and services to potential) has declined from 27.4 per cent to 22.8 per cent over the past ten years.

The Fund proposes taxing a broad set of basic goods that remain exempt or are concessionally taxed, historical zero-rating in export sectors has narrowed the base, and post-devolution fragmentation of GST on services has added compliance and administrative complexity through four separate provincial regimes; however, these are indirect taxes whose incidence on the poor is greater than on the rich, (ii) constitutional court ruled in favour of super tax; however, there is a concern that capital flight may be further fuelled; and (iii) increasing provincial taxes and most particularly agricultural income tax that must be taxed at the same rate as on the salaried. If implemented, this will have political ramifications.

An out-of-the-box solution would be for the government to implement reforms in pensions (through employee contributions that would then be channelled into existing pensioners), a wage freeze for the next three years, budgeting only critical operational expenses, and realistic targets for the mark-up while focusing on creating honest taxpayers through implementing a tax structure that is fair, equitable and non-anomalous.

As is customary, the budget speech will be wrapped in polished language and a labyrinth of figures, percentages, projections, and economic terminology.

It will be watched anxiously across the length and breadth of Pakistan by business chambers, investors, and ordinary citizens alike—the latter holding their breath in the faint hope that it may bring some relief rather than descend like a fresh bombshell of inflation and economic hardship.

For years, the people have endured an unending cycle of mini-budgets in the form of abrupt increases in petroleum prices, electricity and gas tariffs, and fertiliser costs.

These mini budgets trigger a wave of inflation, causing a chain reaction that sends the prices of essential commodities soaring, while rarely, if ever, bringing them back down.

Each increase adds another burden to the shoulders of millions already struggling to survive, tightening the noose around households battling shrinking incomes and rising costs of living.

As one walks through bazaars and markets, one finds little evidence of the much-trumpeted economic recovery.

Under blistering temperatures approaching 50°C and amid frequent, prolonged power outages, people desperately haggle over prices they can scarcely afford.

The reality on the ground tells a different story from the optimistic narratives often heard in official circles.

One encounters village women in bazaars and markets in worn-out clothes carrying malnourished children in their laps, with barefoot youngsters trailing behind.

They move from stall to stall, gazing at vegetables, flour, and other necessities, only to return to their huts empty-handed. This heartbreaking scene is not confined to one locality.

It is the bitter reality visible across cities, towns, and villages throughout Pakistan.

“Does this budget have anything for us?” ask the multitudes struggling merely to survive.

Their question deserves an honest answer.

A large portion of government revenues is consumed by debt servicing, defence expenditures, administrative costs, salaries, and pensions.

What remains for education, health, development, infrastructure, and social welfare is often little more than crumbs.

Even these scarce resources frequently disappear under the insidious shadow of corruption, leaving little to improve the lives of ordinary citizens.

Can a nation claim economic stability when nearly half its population struggles below or near the poverty line? Can recovery be celebrated when millions face hunger and deprivation? Pakistan continues to grapple with one of the region’s lowest literacy rates.

More than 25 million children remain out of school. Healthcare services are deteriorating.

Parents are withdrawing children from classrooms because they can no longer afford educational expenses.

Despair is driving many young people into depression, addiction, crime, and even suicide.

Millions face acute food insecurity. Unemployment remains alarmingly high, while vast numbers of young people enter an already saturated job market every year.

Thousands seek opportunities abroad in desperation, while countless others remain trapped in hopelessness at home. Does this reflect genuine recovery, or merely statistical recovery disconnected from lived reality?

This august House must reflect upon these painful realities. Parliament is not merely a forum where budget figures are recited and financial statements approved.

It is the supreme representative institution of the sovereign people. It must safeguard the people’s right to live with dignity, to earn a livelihood, to educate their children, and to hope for a better future.

The roots of our economic difficulties are well known: a narrow tax base, elite tax evasion, low exports, excessive imports, chronic trade imbalances, dependence on foreign borrowing, and recurring IMF conditionalities.

Yet the burden of adjustment repeatedly falls upon those least able to bear it—the ordinary citizens already gasping for economic breath.

This budget, therefore, demands sacrifice from the top, the elite and the privileged class rather than further extraction from the bottom.

Real reform requires reducing the size of government, curtailing excessive perks and privileges, eliminating redundant ministries and departments, abolishing unnecessary SAPMs and advisors, discontinuing the pensionary benefits to former Presidents, PMs and Speakers forthwith, rationalising expenditures, and ensuring that public office remains a responsibility rather than a source of privilege.

The nation cannot continue asking the poor to tighten their belts while the corridors of power remain insulated from sacrifice.

Parliament, which often demonstrates remarkable unity when protecting its own privileges, must now display the same unity in protecting the interests of the people and reclaiming Pakistan’s economic sovereignty.

An indebted nation is not a free nation. Excessive dependence on external lenders gradually erodes national autonomy and limits independent policymaking.

The path forward lies in domestic resource mobilisation, expansion of the tax net, export-led growth, agricultural revival, industrial development, investment in human capital, and uncompromising accountability.

Only through such measures can Pakistan reduce its dependence on debt and move towards genuine financial self-reliance and economic autarky.

Above all, this budget must be a budget for the people.

As lawmakers deliberate beneath the high ceilings of Parliament today, they should think beyond spreadsheets and statistics.

They should think of the barefoot children wandering through bazaars, of mothers bargaining desperately for necessities, of farmers crushed by rising costs, and of young people losing hope on street corners.

Let this Parliament rise above partisan divisions and prove worthy of the trust placed in it by the sovereign people.

Let it deliver a budget that alleviates poverty, creates employment, strengthens education and healthcare, restores human dignity, and places public welfare at the centre of national priorities.

Only then will the budget be remembered not as an annual ritual of accounting, but as a genuine instrument of justice, compassion, and national renewal.

Copyright Business Recorder, 2026

For years, markets tolerated massive deficits, ultra-cheap money and endless promises that debt no longer mattered. Now the old enforcers of fiscal discipline appear to be returning.

The bond vigilantes are riding again.

The term emerged in the 1980s to describe investors who punished governments they viewed as fiscally reckless by demanding sharply higher yields to hold sovereign debt. It sounds theatrical, almost like a phrase from an old financial Western, yet the mechanism is brutally simple. If investors lose confidence in a government’s ability to control spending or inflation, borrowing costs rise. And when borrowing costs rise long enough, political problems eventually follow.

Britain already knows how ugly that process can become. Liz Truss lasted just weeks after bond markets revolted against unfunded tax cuts in 2022. Now gilt investors are once again flexing their muscles as political uncertainty around Keir Starmer collides with renewed inflation fears triggered by the US-Israeli war on Iran. Bond traders are no longer merely reacting to economic data. They are openly evaluating which politicians appear “market-friendly” and which ones threaten even larger deficits.

One almost wonders whether elections are slowly becoming secondary to bond-market approval ratings.

The timing is hardly accidental. Governments across the developed world are trapped between rising spending obligations and weakening fiscal flexibility. Defence budgets are climbing, ageing populations are becoming more expensive to support, and debt burdens remain historically high after the pandemic years. Then came another energy shock. Oil prices surged after the conflict around Iran disrupted flows through the Strait of Hormuz, reviving precisely the kind of inflation anxiety central banks hoped they had left behind in 2022.

That is where the story becomes more dangerous. Bond markets were already uneasy before the war. The oil shock merely accelerated existing cracks. Higher energy prices push up inflation expectations, which in turn force investors to demand higher yields as compensation for holding long-term debt. The result is a vicious cycle for governments already drowning in borrowing requirements. Debt servicing costs rise just as policymakers face pressure to spend even more.

And perhaps that raises the more uncomfortable question. Has Donald Trump’s war on Iran triggered yet another fault line in a global financial system that was already struggling to absorb higher rates and larger deficits? The energy shock itself may eventually fade, but bond markets appear increasingly focused on the longer-term consequences: structurally higher borrowing costs in economies addicted to debt-financed stability.

The reaction is visible well beyond Britain. Japanese bond markets are again under pressure as investors worry about borrowing-led spending plans, and the yen weakens under the strain of higher energy imports. In the United States, Treasury yields remain materially above pre-war levels even as equity markets repeatedly attempt to price in optimism around diplomacy and eventual rate cuts. France continues battling political instability while facing investor concerns over deficits. Even parts of Asia are feeling the squeeze as currencies weaken and central banks intervene to defend exchange rates against rising energy-import costs.

For years, central banks acted as shock absorbers by suppressing yields through massive bond-buying programmes. Investors knew there was always a buyer standing behind the market. That era is fading. Central banks are retreating from extraordinary stimulus while inflation risks remain stubbornly alive. Bond investors, therefore, carry far greater influence than they did during the years of cheap money. Markets that once depended on central-bank protection are now rediscovering the price of fiscal credibility.

There is another layer to this story that should worry policymakers. Financial risk has not disappeared during the era of low rates; it has simply migrated. A growing share of government-bond trading now flows through hedge funds and leveraged financial structures rather than traditional banks. Private credit markets have exploded in size. Regulators spent years strengthening banks after the 2008 crisis, only for leverage to reappear elsewhere in the system. That means sudden moves in yields now carry the potential to trigger stress across a far wider range of institutions.

Markets have already offered glimpses of that danger. Hedge funds suffered sharp losses during the initial oil shock following the Iran conflict as yields surged and rate expectations rapidly repriced. So far, the system has absorbed the stress reasonably well. There has been no broad liquidation panic, no repeat of the violent bond dislocations seen during earlier crises. Yet the question remains hanging over markets like an unwanted shadow. What happens if the next round of stress hits equities, credit markets and sovereign bonds simultaneously?

For countries like Pakistan, the implications extend well beyond financial theory. Higher US Treasury yields tighten financial conditions globally, strengthen the dollar and increase pressure on emerging-market borrowing costs. Oil shocks simultaneously worsen import bills and inflation pressures. Countries already balancing fragile external accounts quickly discover how little room remains for policy mistakes once bond markets turn hostile. The world’s largest economies may still possess buffers that smaller states do not.

That may ultimately be the real significance of the bond vigilantes’ return. Investors are no longer reacting only to inflation data or central-bank speeches. They are beginning to question whether governments themselves have become structurally dependent on debt, cheap refinancing and endless fiscal expansion. Wars, energy shocks and political instability merely accelerate the moment when those doubts become impossible to ignore.

Bond markets, in the end, have a habit of forcing reality back into systems built on optimistic assumptions. The question now is whether governments are facing a temporary period of market anxiety, or the early stages of a much harsher repricing of fiscal risk in a world already strained by war, debt and inflation fatigue.

“I disagree — he is following the US policy to snip all anti-Semitism in the bud even though it lost him the Muslim vote.”

“But that’s silly. The British public is angered at Israeli genocide of Gaza now into its third year, its support for the settlers ransacking and killing Palestinians in the West Bank, its attacks on Lebanon, its ceasefire violations that number more than a 1000 I reckon….”

“That fellow Mehmud Abbas….”

“Hey should at least have the courage to admit the flaw in his policy of engagement with Israel.”

“Bush’s legacy is truly gone – from referring to those opposed to Israeli hegemonistic designs in the region as the axis of evil, to now being referred to as the axis of resistance.”

“Hamm but what should or could Starmer learn from us?”

“Let me give you a hint, our Prime Minister has reportedly ordered the Board of Investment (BOI) to merge with the Special Investment Facilitation Council (SIFC) and…..why are you frowning?”

“Foreign direct investment has fallen dramatically – from 1.5 billion dollars July-March last year, no great shakes in any case if we consider that India attracted more than 50 billion dollars last year, to 410.7 million dollars in the same period this year….”

“The merger….”

“SIFC was established in June 2023 and BOI dates back to God knows how many decades!”

“OH, so you want the BOI to be dissolved, I guess. But what about the man who heads it – Aleem Khan.

First, you took away his control over the Ministry of Privatisation, remember the PIA privatisation fiasco, which he said he was not involved in, that he still heads by the way, and now BoI.”

“He still has Communications, though I am not sure what that entails other than a flagged car and protocol. But I tell you this shows that dumping of The Man Who Must Remain Nameless, Faceless and Voiceless is no longer…”

“Shut up. Anyway, Wes Streeting is, or perhaps more accurately, may make a run for his boss’s job. Now if Starmer were the Pakistani Prime Minister, he would have merged the Secretary of State for Health and Social Care, Streeting’s portfolio, with that of the Prime Minister, and so the guy would be without a job.”

“I heard that the Prime Minister has some differences with the Minister for Interior? Can he merge…”

“Stop right there.”

“OK, but I am not sure if there is a tradition of wearing multiple hats in the UK?”

“Starmer is trying to change tradition: you gotta give him that! So why not in this too?”

“I can’t argue with that.”

The challenges are rising because of the current commodity price shock, mainly energy.

Regional currencies, including India’s, have been adjusting to changing realities. However, Pakistani authorities, as always, remain sensitive about exchange rate adjustment. It appears there are no lessons from the past.

PKR has appreciated by a few percentage points against the USD over the past three years. The rupee depreciation was sharp in the year before that, and the adjustment was higher than what inflation and interest rate differentials suggested, which was evident from the Real Effective Exchange Rate (REER) value of 85-87 in the first half of 2023.

The next two years were a catching-up period. SBP kept real interest rates positive, and inflation cooled amid declining international commodity prices after the supercycle. However, lately, with a recent inflation surge due to the global oil price shock, the exchange rate again appears overvalued. REER moved up to 105.2 in March 2026, the highest level since September 2018.

It needs gradual adjustment. Otherwise, within a few months or quarters, the currency could depreciate with a sharp jerk. That is not healthy and could create panic. It is better to make timely adjustments, which would help restore competitiveness. Some may argue that exports do not grow merely because of currency depreciation. That is partially correct, but an overvalued currency reduces the existing export base and makes imports cheaper, thereby putting pressure on the trade deficit.

Over the last three years, on a 12-month rolling basis, inward remittances have increased by $13 billion, or almost 50 per cent, to reach $40 billion. That has helped contain the current account deficit, even as the trade balance worsened by $12 billion during the same period.

Now, a dent in remittances is expected due to a slowdown in GCC economies in the aftermath of the US-Iran war, from where Pakistan receives 50 per cent of its inward flows. This, coupled with upward pressure on imports due to higher prices, would strain the current account balance. That, in turn, would limit SBP’s ability to build forex reserves.

To curb imported demand, SBP has increased the policy rate by 1 per cent and may announce another hike in June, as inflation is expected to remain around 13-15 per cent in May and June. It is advisable to use the exchange rate as a line of defence, which would also help exports remain steady. Remittances are not very currency-sensitive, but exports are.

Pakistan’s textile exports have two segments. One is low-value-added yarn and fabric, whose share is falling and being replaced by the growing high-value-added segment of garments and apparel. That is positive, but the growing segment is losing competitiveness. According to leading textile exporter Musadaq Zulqarnain, 20-25 per cent of costs consist of wages, which have increased by over 30 per cent in dollar terms over the last three years, as minimum wages in PKR terms have risen by 25 per cent in two years. This has resulted in a 5-6 per cent reduction in margins in an industry where margins are already thin.

The increase in wages was necessary to counter inflation, but at the same time, PKR should be adjusted to keep exporters’ margins intact. A similar situation exists for IT exporters, where labour accounts for 70-80 per cent of costs. They are facing pressure as well. One player argues that there should be a defined exchange rate policy linked to a certain REER level.

Treasury officers in leading banks also believe that PKR needs adjustment, but according to one banker, SBP is too touchy about changing currency parity. Well, SBP, or authorities in the twin cities, should not get married to a particular level.

The SBP governor recently said that the central bank bought $27 billion from the interbank market over the last three and a half years. He perhaps implied that had SBP not bought these dollars, the currency could have appreciated further. That may not be entirely true. The current account has cumulatively shown a mere $0.3 billion surplus since January 2023, while SBP reserves, net of external debt and liabilities, have risen by only $3.3 billion. (SBP forex reserves increased by $13.3 billion, while total external debt and liabilities rose by $10 billion during the same period.) If we also add the $3 billion reduction in forward liabilities, overall net reserves, adjusted for forward liabilities, increased by $6.3 billion.

This means that around $20 billion out of SBP’s $27 billion purchases was effectively used to finance the current account, as SBP pays interest on government debt, which forms part of the current account. Moreover, SBP has an unstated rule requiring banks not to buy dollars from one another and instead to finance outflows through their own inflows. Any surplus dollars are then absorbed by SBP.

That strategy may not work going forward, as the current account could slip into deficit in FY27, halting reserve accumulation. It is best to act before panic hits in the coming months or quarters.

The doctor’s prescription is a gradual depreciation of 3-5 per cent, implemented in a well-communicated manner to avoid panic, restore competitiveness, and prevent a far more disruptive adjustment later.

The consequence? An economy unable to fund its investment needs has to rely on foreign savings, resulting in a balance of payments crisis each time. This is not a tale of saving money or living frugally.

This is one of the most important, but also the least discussed, macroeconomic disasters of our time. It needs attention in the upcoming budget debate for FY2026-27.

The country cannot finance sustainable growth by taxing more and borrowing more; it needs to rebuild its domestic savings base for sustainable growth.

The current performance of country savings looks very dismal when compared with the regional peers. Pakistan has been saving on average about 11 percent of its GDP for the past 35 years.

In the same period, Bangladesh averaged 21 percent, India by over 28 percent, and Vietnam by almost 30 percent.

The gap cannot be explained by income level alone; these countries managed to create an environment where savings were safe and well-rewarded. Those savings ultimately translated into jobs and growth.

Conversely, the savings base eroded in Pakistan. Because savings don’t make sense for the average Pakistani. Around 94 percent of all income generated in the economy is consumed on necessities, such as food, rent, power, commuting, healthcare, and education.

Whatever little money is left over gets eaten up by rising inflation, which in recent years has always risen faster than the interest offered by banks.

When returns on deposits or savings products do not compensate for rising prices, households see little reason to keep money in formal financial instruments.

This creates an inflation/consumption trap. Households spend the lion’s share on necessities, and what little is left ends up stashed in cash, committees, and jewellery in the cupboard.

These may provide security at the household level, but they do not create an efficient pool of resources for productive investment.

The situation is further worsened by the lack of financial literacy and sludge.

Millions of Pakistanis, particularly women and rural inhabitants, are unable to access financial instruments due to long distances, extensive documentation, lack of trust, and existing products that are not compatible with their needs and beliefs.

Then comes the role of the state, persistent fiscal deficits reduced national savings due to persistent fiscal deficits.

Over the years, the country has been spending more than it generates and relies heavily on borrowing, including from domestic banks, leaving almost nothing for the private sector.

Banks prefer such lending due to associated lower risks and higher profits, which triggers the crowding out of private investors from the economy.

However, all is not lost, and this issue is still resolvable. The upcoming Finance Bill is the natural place to begin with, through the provision of incentives to motivate citizens and nudging them to save.

Building on the Policy Viewpoint, “Mobilising Domestic Savings: A Finance Bill and Institutional Reform Agenda for Pakistan,” by Dr S. M. Naeem Nawaz (Professor of Economics) and Wajid Islam (Research Economist) at PIDE, the policy response should begin with a targeted National Savings Mobilisation Package through the FY2026–27 Finance Bill.

The principle should be simple. Ensure that systematic saving is more rewarding and secure than stashing away one’s wealth in the form of cash or gold. Specifically, it requires the revival of a targeted tax relief scheme for approved long-term investment instruments.

Previously, such instruments were offered under Section 62 of the Income Tax Ordinance until withdrawn in 2022.

It implies the promotion of pension schemes, especially those aimed at younger individuals, women, and self-employed citizens, to encourage saving from an early age.

It is pertinent to note that the incentives have to be tailored to serve as a reward for authentic, small, and long-term savers.

Caps on the amount of the incentive, minimum investment duration, and clawback provisions for early withdrawals can help keep the fiscal burden at bay.

A savings-friendly budget needs to refrain from punishing citizens whenever their money flows into the formal economy.

The transaction taxes on bank-based financial transactions have done significant harm by pushing citizens away from banks.

Along with incentives, a conducive environment is a prerequisite to enable easy access to financial markets.

The country doesn’t need to work from scratch as several options are already available, such as national savings institutions, a broad network of banking outlets, digital payment mechanisms, and Islamic finance institutions.

What is needed is a channel that links them in a manner that allows citizens to gain access to these services through digital accounts, easy verifications, and diversity of Shariah-compliant instruments.

However, nothing will stick unless the government balances out its books as well.

Restraining wasteful expenditure, reducing losses in state-owned enterprises, and using borrowed funds for investments instead of expenditures must become integral parts of any policy for savings.

Pakistan has spent too long trying to finance growth without building the savings base needed to sustain it. The choice is not between austerity and growth.

The real choice is whether Pakistan will continue relying on foreign savings or begin rebuilding the domestic pool on which durable growth depends.

The Finance Bill FY2026-27 should be the starting point.

Reward formal long-term saving, protect small savers, reduce public-sector dissaving, and ensure that domestic resources finance productive investment.

Copyright Business Recorder, 2026

The objective was to derive the tax reform agenda from the viewpoint of raising the level of revenues, improving equity in the tax system and enhancing the efficiency in tax collection.

The coverage of taxes is taken to include the petroleum levy, a large source of revenue. This is not the case with the Federal Ministry of Finance, which treats it as non-tax revenue. However, it was taken out of the sales tax on POL products. The IMF also categorises the petroleum levy as a tax.

The principal problem continues to be very low revenue mobilisation by the provinces. Consequently, the national tax-to-GDP ratio remains relatively low at close to 12 percent of the GDP.

Other Asian countries have ratios ranging from 14 percent to 18 percent of the GDP.

Regarding tax rates, the evidence is that these rates are relatively high in Pakistan, and the focus of tax reforms should be on expanding the tax bases and bringing down rates, especially on the corporate sector, large-scale manufacturing and salary incomes.

The scope of widening the tax base exists in several sectors, including retail trade, real estate and agricultural incomes.

Based on the above description of the required type of tax reforms at the federal and provincial levels, some proposals are presented below.

The first important step is the rationalisation of the petroleum levy. Following the shift from sales tax to the levy, the effective rate has gone up substantially, from 18 percent to between 30 percent and 35 percent.

The incidence of petroleum taxes is regressive because they increase the transport cost of all products, including food items.

The rise in petrol prices after the commencement of the Middle East war has led to a quantum jump in the rate of inflation from 5 percent to 11 percent.

Therefore, there should be a reduction by at least one-third initially in the petroleum levy, which is currently Rs 117.4 per litre on petrol and Rs 42.6 on HSD. This major step in the federal budget will constitute a big source of relief.

The government has apparently decided to impose a small fixed 1 percent tax on small retailers. There is also a need for more revenue from large retailers and outlets in supermarkets.

As such, the withholding of income tax on commercial consumers on their electricity bills should be made more progressive.

Given the gross under-taxation of property today, in the presence of six taxes on property at the federal and provincial levels, there is a need to focus on real estate.

Today, investment is being diverted in a big way from industry to real estate.

The first proposal is the levy of a capital value tax on property at the federal level as a substitute for the wealth tax. This will also increase the progressivity of the tax system.

The exemption limit may be Rs 10 million. Beyond this, there could be four slabs with rates ranging from 0.25 percent to 1 percent.

There is also a case for the enhancement of withholding taxes on commercial importers, given the extremely low incidence of taxes on the wholesale and retail trade sector. The current rates should be enhanced by 0.5 to 1 percentage points.

Turning to the personal income tax, there is a strong case for raising the exemption limit from Rs 600,000 to Rs 1,200,000. Also, the size of the slabs needs to be increased, especially on salary income.

There is need also for rationalisation of the super tax on profits of corporate entities. Currently, it is linked on a progressive basis to the absolute size of profits.

This penalises corporate entities which are large in size but have low rates of return on equity.

The structure could start with a tax rate of profits of 25 percent if the return on equity is less than 12 percent. Thereafter, there could be three more slabs.

The highest slab should have a tax rate on profits of 35 percent when the pre-tax return on equity exceeds 25 percent.

There is a dire need for the development of the provincial tax system in Pakistan.

This has also been highlighted by the IMF. Consequently, the IMF has asked for additional revenue mobilisation of Rs 400 billion by the four provincial governments combined in 2026-27.

There are a number of potential sources of additional tax revenues at the provincial level.

The first large tax base is the agricultural income tax. If collected at the same rate as other personal income, it has the potential to yield Rs 800 billion in revenues.

The IMF has pushed for reform of the agricultural income tax law. This has been done by the provincial governments.

However, this has not translated into additional revenues. For example, the Punjab government has targeted only Rs 10.5 billion from this tax in 2025-26.

The agricultural income tax will also contribute to increased progressivity of the tax system. The top 1 percent of the farmers own over 24 percent of the farm area in Pakistan, according to the Agricultural Census.

However, the rural elite has a dominant role in the provincial power structure and has prevented a move towards normal taxation of agricultural income like other incomes.

The solution lies in the introduction of a simple, presumptive tax system with the tax rate linked to the size of the land holding.

The exemption limit could be 12.5 acres equivalent irrigated area. Therefore, there could be several slabs starting with a tax rate of Rs 1000 per acre, going up on landholdings above 150 acres to Rs 10,000 per acre.

The tax audit system of FBR needs to be improved.

First, the percentage of returns audited should exceed 10 percent. Second, a risk-based audit policy should be developed based on the characteristics of the taxpayer. Third, a new taxpayer may be exempted from audit for the first three years. Fourth, a taxpayer may not be subject to audit if the income disclosed increases by more than 25 percent.

There is also a need to introduce some fiscal incentives for promoting savings and investment, which have fallen to exceptionally low levels in Pakistan in recent years.

First, the investment allowance for investment in particular types of savings instruments may be reintroduced in the personal income tax. Second, the enhancement of the tax credit for balancing and modernization and replacement (BMR) is to be raised from 10 percent to 20 percent. Third, a tax holiday may be given for new investment in industry anywhere in Pakistan for five years.

Finally, there is an urgent need to focus on the process of integrating the provincial sales tax on services with the federal sales tax on goods. The first step should be the replacement of the federal excise duty on services by the provincial sales tax. Second, harmonisation of tax rates should take place to facilitate the move to a proper VAT.

This implies an increase in the provincial tax rates. Third, move towards administration and harmonisation with the same tax return, a common IT system and common rules. The powers of audit to be shared by the federal and provincial governments.

Overall, the federal budget should focus on the reduction of the rate of the petroleum levy.

This can be made up at the national level by the above-mentioned reforms in federal and provincial taxes.

The year 2026-27 should focus more on the mobilisation of additional revenues from provincial taxes.

Copyright Business Recorder, 2026