EDITORIAL: Federal Minister for Planning, Development and Special Initiatives Ahsan Iqbal in a letter to Prime Minister Shehbaz Sharif, leaked to a section of the media, expressed extremely serious reservations on the strategy of achieving fiscal stabilization by compressing development expenditure and borrowing more.
There is overwhelming evidence that proves the veracity of his assessment: Public Sector Development Programme (PSDP) expenditure was budgeted at 5 percent of the total outlay this year (one trillion rupees against an outlay of 18.771 trillion rupees) against 6.25 percent budgeted last year (one trillion rupees against the total outlay of 167 trillion rupees) though the documents do not indicate by how much this outlay was slashed as is the usual practice especially when the country is on an International Monetary Fund programme to keep the deficit within sustainable levels as agreed.
In this context, the Minister would be well advised to revisit some of the overarching priorities of his party, notably road construction, considered critical to providing connectivity within the country as well as a magnet for votes, yet care must be taken to ensure that the associated procurement process is rigidly followed to minimize charges of nepotism and corruption. There is an urgent need for the construction of reservoirs, given that Pakistan is defined as a severely water-stressed country and therefore more of the scarce PSDP allocations would need to be invested in this sub-sector.
Private sector-led growth (the policy thrust rhetorically supported by the cabinet including Finance Minister Aurengzeb) is hostage to the negative flow of credit to the private sector – negative 364.5 million rupees 1 July to 11 September 2026 against negative 170 million rupees 1 July to 12 September 2025. True that the large-scale manufacturing sector has, as per the Pakistan Bureau of Statistics shown a growth rate of 3 percent in July FY27 as opposed to 4.98 percent for FY26 yet this has been challenged by various productive units, especially the textile sector, a major exporter, that in an anecdotal survey carried out by Business Recorder lamented the closure of 150 units while other major industrial subsectors have complained of the rising input costs, including the 11.5 percent policy rate that is double the regional average, which has made their products uncompetitive in the region and in some cases even domestically as the very large porous borders have again become a beacon for smuggling.
Iqbal’s lament over a rise in borrowing is also legitimate and the debt management policy is focused on shifting reliance on short-term treasury bills to medium to long-term bills offer a higher yield though the actual repayment period is further down the line. And, recently, the successful dual tranche issuance of 3 billion dollar Eurobonds with 1.75 billion dollars 5 and-a-half year maturity period at 7.5 percent coupon rate and the remaining 1.25 billion dollars with a ten-year maturity and a 7.9 percent coupon rate – rates that may create serious issues as the repayment deadline approaches if the country remains on a boom-bust cycle and the budgets continue to be heavily financed by reliance on borrowing. According to Debt Management Office, total public debt was 86.7 trillion rupees by end of June 2026 comprising of 59.4 trillion domestic and 27.3 trillion-rupees external debt. In the current year debt budgeted is lower, however; this may not reflect the ground realities at the end of the year, given that last year’s budget indicated net external resources of 105,523 million rupees while the revised estimates for the year were a whopping 1,534,027 million rupees. The current year’s budgeted amount is 813,057 million rupees.
The Minister further contended, citing a World Bank report, that one out of every two poor people in the region spanning the Middle East, North Africa, and Afghanistan lives in Pakistan. Perhaps his most critical projection from a political perspective was his warning: the government must alter its growth trajectory before the next election cycle begins, so it can present real results to voters rather than simply stating, “We inherited an economic crisis.”
His argument underscores the need to establish a forum where the Ministry of Finance is required to present its baseline projections through fiscal year 2028-29, including the expected growth trajectory, the likely state of the economy, and a credible post-IMF medium-term scenario. However, both the IMF (in its quarterly review documents under the ongoing program) and the Finance Ministry already undertake such forecasting exercises as part of their standard functions.
A more effective suggestion would have been for the Planning Minister to urge the Finance Ministry to formulate an innovative, in-house solution designed to increase leverage with IMF staff. This strategy must include massively slashing current expenditures by 2 to 3 trillion rupees this year, as well as over the next two years, providing the necessary impetus to put the economy on a high, inclusive growth trajectory.
Copyright Business Recorder, 2026