SDPI experts highlight fiscal challenges, climate contradictions amid missed growth targets in Budget 2025-26-9527-News

SDPI experts highlight fiscal challenges, climate contradictions amid missed growth targets in Budget 2025-26-9527-News-SDPI

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SDPI experts highlight fiscal challenges, climate contradictions amid missed growth targets in Budget 2025-26

ISLAMABAD, June 15 (SABAH): Experts at a post-budget media briefing raised alarms over the implications that may hit economic stability of the country, debt repayments, climate goals, and social protection because of the measures announced in the federal budget 2025-26.

The media briefing was held by the Sustainable Development Policy Institute (SDPI). In an overall Budget 2025-26 overview, SDPI Executive Director Dr. Abid Qaiyum Suleri highlighted Pakistan’s pressing fiscal constraints, saying that the government has only Rs 11 trillion at its disposal amid massive debt repayments and increasing defence needs. “India’s $80 billion defence budget dwarfs Pakistan’s $7 billion. The government is compelled to ramp up defence spending, especially after recent tensions with India, but this comes at the cost of development expenditure,” he warned.

Dr. Suleri said the budget’s regressive taxation structure, particularly the 18% General Sales Tax (GST) on solar panels, is a “misstep” that undermines Pakistan’s climate ambitions and Nationally Determined Contributions (NDCs). “This move contradicts the newly introduced carbon levy and global commitments to phase out fossil fuels,” he said.

The budget reflects an increase in pension expenditures over salaries, and development allocations have seen cuts despite pressing needs, he added. “The allocation for dams remains ‘business as usual’, even as the Indus Waters Treaty stands suspended. Water should be treated with the same urgency as defence,” Dr Suleri suggested.

Dr. Sajid Amin Javed, Deputy Executive Director, SDPI, pointed out that the budget was designed to meet short-term IMF targets but lacked long-term structural reforms. “The focus is clearly on meeting the conditions for the next IMF tranche rather than steering economic transformation,” he said.

With PKR 600 billion in new taxes, mostly indirect, and inflation expected to stay high, he warned that the budget will squeeze the salaried class while offering tax breaks to sectors like real estate and large retailers. The expected growth rate of 4.2% may realistically fall between 3.5% to 3.7% amid global uncertainties, particularly the Iran-Israel conflict’s impact on oil prices. Dr Amin noted that the agriculture sector, critical to Pakistan’s economy, remains underprioritized.

Dr. Shafqat Munir, SDPI Deputy Executive Director, acknowledged the tough economic conditions under which the budget was framed, stating that “every government tries to cut the cloth according to the size.” He welcomed the 6% budget allocation for climate-related commitments and the 8.6% of development funding directed at climate adaptation. However, he pointed out the contradictions that “Imposing 18% GST on solar panels while introducing a carbon levy of Rs2.5 per litre sends mixed signals.”

Highlighting the global decline in humanitarian aid, he urged Pakistan to invest in anticipatory resilience and disaster risk reduction, calling this budget the first to meaningfully acknowledge climate impacts.

Loan allocations of Rs100,000 for 700,000 farmers were deemed insufficient, and cotton production continues to decline, he said, adding that the labour rights and welfare have also been overlooked in the new fiscal plan. The budget document makes no mention of measures to uplift wages or protections for the over 75 million-strong industrial labour force, he said.

Dr. Fareeha Armughan, SDPI Research Fellow, said that less than 1% of the budget is allocated to education, with labour issues conspicuously absent. “This budget gives a cold shoulder to the 75 million-strong industrial labour force,” she remarked. Despite criticisms, the budget has made record allocations to social protection, with Rs716 billion allocated 21% more than last year. Dr Armughan described the sector as a “blue-eyed” area for the IMF and a proxy for climate adaptation, with increasing gender-sensitive budgeting practices becoming evident.

Dr. Khalid Waleed, SDPI Research Fellow, expressed concern over a 27% cut to WAPDA’s hydel project budget and the declining subsidies, especially a 57% cut for Balochistan’s solar tubewells. He pointed out the contradiction of zero tax on coal-based power plant income, warning that such policies could upset Pakistan’s renewable energy transition. He further criticized the lack of support for solar panel adoption amid growing energy prices. “This budget appears to promote local assembly under the guise of indigenization, even as Chinese-manufactured panels flood South Asia due to EU/US bans,” Dr Waleed stated.

Responding to media queries, the SDPI experts collectively recognized that while the budget attempts to balance relief with stabilization, it is riddled with contradictions, short-termism, and sectoral imbalances. It reflects a broader trend of prioritizing fiscal survival over long-term economic and climate resilience.

To fund proposed reliefs in various sectors, the experts said, the government is expected to rely heavily on borrowing, raising further questions about fiscal sustainability and debt management.

They said parliament is expected to debate and possibly approve these measures during the ongoing budget sessions, however, the absence of clear support for critical sectors like agriculture, education, and labour has already fueled calls for urgent revisions.

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