The National Economic Council (NEC) on Wednesday approved a record national development budget of Rs3.9 trillion, amid calls from provincial governments for a reassessment of the National Finance Commission (NFC) award and a revival of discussions with the International Monetary Fund (IMF) on agricultural income taxation.
The federal Public Sector Development Programme (PSDP) for 2025–26, cleared by the NEC, reflects the government’s political priorities, focusing on infrastructure and projects aimed at appeasing coalition partners. Allocations for critical sectors such as space research, atomic energy, health, and education have been reduced, while spending on Sindh-specific projects and discretionary funds for lawmakers has been increased.
Chaired by Prime Minister Shehbaz Sharif, the NEC approved an economic growth target of 4.2% and an inflation target of 7.5% for fiscal year 2025–26. The council also addressed population growth concerns, noting that current economic expansion is barely keeping pace with demographic growth.
The NEC sanctioned Rs1 trillion for federal development projects and Rs2.9 trillion for provincial development programmes. Despite the country’s tight fiscal situation, the council increased politically motivated spending by reallocating funds from key development sectors.
Parliamentarians’ schemes received an expanded allocation of Rs70 billion—up from the earlier proposed Rs50 billion. Similarly, funding for provincial projects was increased from Rs93.4 billion to nearly Rs106 billion.
To accommodate these increases, budgets for health and education were cut further. The Higher Education Commission’s funding dropped to Rs39.4 billion, while the Ministry of Health saw its allocation fall to Rs14.3 billion. The power sector budget was scaled back from Rs104 billion to Rs90 billion, though the water sector received a boost to Rs133 billion from an earlier Rs119 billion.
Budgets for the Space & Upper Atmosphere Research Commission (SUPARCO) and the Pakistan Atomic Energy Commission were slashed dramatically—from Rs24.2 billion to Rs5.4 billion, and from Rs4.7 billion to just Rs781 million, respectively.
This development plan was finalized by a committee led by Deputy Prime Minister Ishaq Dar and political adviser Rana Sanaullah Khan. However, some of these allocations contravene Pakistan’s commitments to the IMF, particularly the directive to reduce federal spending on provincial initiatives.
During the meeting, provinces also voiced economic concerns. Sindh raised the issue of stagnant agricultural growth—recorded at only 0.6%—and proposed revisiting agricultural income tax policy with the IMF. Finance Secretary Imdad Ullah Bosal did not confirm whether the Ministry of Finance would address the matter with the IMF.
Although all four provinces have passed new agricultural income tax laws, they remain unenforced. Experts believe the IMF is unlikely to accommodate any leniency on this issue.
Khyber Pakhtunkhwa (KP) officials highlighted the delay in updating the NFC award, arguing for a larger share of resources following the merger of the tribal districts. The Prime Minister assured KP of an NFC meeting in August. However, the region’s development allocation was cut from Rs70 billion to Rs65.4 billion.
Punjab officials also raised concerns over high taxation on agricultural machinery.
The NEC approved Rs2.86 trillion in development allocations for the provinces: Punjab is set to spend Rs1.2 trillion, Sindh Rs995 billion, KP Rs417 billion, and Balochistan Rs280 billion. These figures exceed IMF-recommended provincial development limits by around Rs860 billion, casting doubt on the IMF’s cash surplus targets or the provinces’ ability to fully utilize the funds.
The NEC also reviewed progress on the current fiscal year’s PSDP and macroeconomic targets. Low utilization of allocated funds was noted.
Further, the NEC reviewed the Central Development Working Party (CDWP) and Executive Committee of the National Economic Council (ECNEC) decisions made over the past year. It approved the publication of the 13th Five-Year Plan (2024–29) and the implementation framework for the URAAN Pakistan programme, launched by the Prime Minister on December 31, 2024.
Exports for the upcoming fiscal year are projected at $35.3 billion, remittances at $39.4 billion, imports at $65.2 billion, and the current account deficit at $2.1 billion.
Currently, 1,071 development projects valued at Rs13.4 trillion are underway. These require an additional Rs10.2 trillion to complete, with estimates suggesting a decade or more will be needed to finish them.
The five-year plan emphasizes equitable regional development, enhancing exports, strengthening SMEs, boosting social protection and poverty alleviation, developing human capital, shifting toward a knowledge-based economy, and advancing climate adaptation strategies.
