Pakistan approves Rs3.66tr development budget, prioritises defence, security and IMF-linked reforms

ISLAMABAD: Pakistan’s National Economic Council (NEC) on Wednesday approved a Rs3.66 trillion national development outlay for fiscal year 2026-27, signalling the government’s intent to prioritise defence, counterterrorism, economic stability and reforms tied to the International Monetary Fund (IMF) programme amid continuing fiscal pressures.

The approval came during an NEC meeting chaired by Prime Minister Shehbaz Sharif and attended by federal ministers, provincial chief ministers and senior government officials to finalise the country’s national development priorities for the next fiscal year.

According to an official statement, the council approved the Public Sector Investment Programme (PSIP) alongside provincial Annual Development Programmes (ADPs), setting a combined national development framework worth Rs3.66 trillion for FY2026-27.

The council also approved a gross domestic product (GDP) growth target of 4 per cent, while endorsing a broader strategy focused on macroeconomic stability, completion of ongoing infrastructure schemes and implementation of structural reforms in line with Pakistan’s commitments under the IMF programme.

The development framework comes at a time when Pakistan is attempting to consolidate economic gains following a prolonged period of inflation, external financing pressures and fiscal instability. Officials said the government’s priorities for the coming fiscal year would focus on safeguarding economic recovery while ensuring public investment remains aligned with fiscal discipline.

Focus on defence and security

During the meeting, Prime Minister Shehbaz Sharif made clear that national security and defence spending would remain among the government’s foremost priorities, citing persistent regional tensions and internal security challenges.

“The provision of adequate resources for national defence is the foremost responsibility of the government,” the prime minister said, according to officials briefed on the meeting.

Sharif emphasised that Pakistan continued to face security threats that required enhanced preparedness and additional resources, particularly for counterterrorism operations and law enforcement institutions.

His remarks come amid renewed concerns over militancy-related violence in different parts of the country, particularly in Khyber Pakhtunkhwa and Balochistan, where security forces have reported an increase in militant attacks over the past year.

Government officials said that while development spending remained critical for long-term economic growth, national security requirements would continue to shape fiscal planning and resource allocation in the upcoming budget.

IMF-linked reforms remain central

Officials familiar with the deliberations said the approved framework places strong emphasis on reforms aimed at sustaining Pakistan’s ongoing IMF-supported stabilisation programme.

The government plans to continue measures aimed at broadening the tax base, improving fiscal management, rationalising public expenditure and strengthening governance mechanisms in state institutions.

Pakistan’s economic managers have repeatedly argued that maintaining macroeconomic stability remains essential to avoid another balance-of-payments crisis and restore investor confidence.

The NEC reportedly stressed the need to ensure that development spending remains realistic and financially sustainable, particularly given existing fiscal constraints and debt obligations.

Officials said the government wants to avoid launching politically motivated projects that could increase financial liabilities without generating measurable economic returns.

Review of ongoing development projects

During the meeting, the NEC reviewed progress on ongoing federal and provincial development schemes before approving the upcoming fiscal year’s development plans.

The council assessed projects approved by the Central Development Working Party (CDWP) and the Executive Committee of the National Economic Council (Ecnec) between April 2025 and March 2026.

Officials said the review focused on ensuring continuity of major infrastructure and public welfare schemes while reducing delays and cost overruns that have historically slowed development implementation in Pakistan.

The government also emphasised the importance of completing ongoing projects rather than initiating an excessive number of new schemes, a move aimed at improving efficiency and avoiding fragmentation of public funds.

The approved framework is expected to support investment in transport infrastructure, energy, water resources, education, healthcare and climate resilience initiatives, although detailed sectoral allocations are expected to emerge in the federal and provincial budgets.

Provincial participation

The meeting was attended by provincial leadership as part of the constitutional requirement for joint federal-provincial planning through the NEC.

Punjab Chief Minister Maryam Nawaz joined the meeting through video link, while representatives from other provinces participated in discussions on development priorities, inter-provincial coordination and allocation of financial resources.

Officials said provincial governments shared their priorities for infrastructure development, social welfare programmes and region-specific projects during the session.

The participation of provincial governments is considered particularly significant given that a major share of public development spending takes place at the provincial level after the 18th Constitutional Amendment.

Economic outlook and challenges

While approving the framework, the NEC acknowledged the economic challenges facing the country, including limited fiscal space, rising debt servicing costs and the need to sustain growth without undermining macroeconomic stability.

Economists have argued that achieving the government’s 4pc GDP growth target would depend on improvements in industrial activity, agricultural performance, exports and investor confidence, alongside continued policy stability.

At the same time, officials said development spending would need to remain carefully managed to avoid widening the fiscal deficit, particularly as Pakistan continues negotiations linked to external financing and reform benchmarks.

With the approval of the NEC framework, the federal and provincial governments are now expected to finalise budgetary allocations for key sectors, setting the stage for the implementation of development priorities in FY2026-27 while balancing competing demands of security, economic recovery and fiscal reform.