In Pakistan’s current budget planning for the upcoming fiscal year, policymakers emphasize a significant shift: investments in human development must not wait for higher economic growth. Instead, they argue, social development should drive inclusive and sustainable growth.
This strategic shift comes as Pakistan has dropped to the 168th spot among 193 countries in the latest Human Development Index (HDI) rankings. The United Nations Development Programme (UNDP) has categorised Pakistan among the 26 lowest-ranked countries, alongside mostly conflict-ridden or impoverished Sub-Saharan African nations and only one other South Asian country—Afghanistan. Notably, even during years when GDP growth approached 6–7%, Pakistan’s HDI score remained critically low.
Why Pakistan’s HDI Remains Low
According to analysts at Business Recorder, this persistent underdevelopment stems from flawed governance priorities, elite capture, institutional weaknesses, and the consistent failure of both military and civilian governments to prioritise human capital development.
The HDI does more than reflect present conditions—it highlights the trajectory of a country’s future. History shows that when Pakistan’s debt-fuelled growth collapses, there is no effective social safety net in place, leaving the general population vulnerable and unsupported.
Politicised Development Projects
A major issue lies in how development funds are often allocated. Many public projects are designed to serve political interests—mainly benefitting ruling party legislators or their allied interest groups—rather than addressing real public needs. Dr Nayar Rafique, a PhD researcher specialising in development economics and data analytics, points out that such politically driven planning misallocates scarce national resources to inefficient and unsustainable projects, leaving the broader population underserved.
Budget Goals: Relief for the Common Man
Prime Minister Shehbaz Sharif has stated that the 2025 budget will focus on providing relief to the lower and middle classes. This comes in response to growing criticism over heavy taxation on salaried individuals, while traders and participants in the informal economy remain largely untaxed.
A well-known analyst at The Express Tribune highlighted the disparity: during July–March, salaried individuals contributed Rs10 per Rs100 in taxes, whereas traders paid only 60 paisa. The informal economy is now estimated at a staggering $457 billion, which is 64% larger than the formal economy valued at $340 billion in 2023.
Income tax from the salaried class during the first nine months of this fiscal year totalled Rs391 billion, already Rs23 billion more than the entire previous year. Despite targeting Rs75 billion in additional income tax from salaried individuals for 2024–25, collections have already exceeded Rs140 billion, reflecting a 56% year-on-year increase with three months still remaining.
Civic Needs and Labour Rights
Essential services remain a challenge for ordinary citizens. For example, Karachi residents still struggle with access to uninterrupted water supplies. Meanwhile, labour unions demand living wages—not just minimum wages—alongside better working conditions across industries.
Stagnant Development Spending Amid Higher Revenues
Despite a 47% increase in revenue, a 37% rise in subsidies, and a 170% boost in provincial cash surpluses, development spending has seen minimal growth. The Public Sector Development Programme (PSDP) consumed Rs261 billion in the first half of the current fiscal year, only slightly above Rs255 billion last year.
Provinces provided Rs775 billion in surplus funds during this period, compared to Rs289 billion last year. Yet, total development spending stood at Rs448.6 billion in the first ten months (July–April), covering less than 41% of the revised Rs1.1 trillion development budget.
Mid-Year Budget Review: Fiscal Discipline but Operational Disruption
In its mid-year budget report, the Ministry of Finance reported a fiscal deficit of 1.9% of GDP (down from 2.5%) and a primary surplus of 2.3% of GDP, compared to 1.4% last year.
However, a new directive to surrender unused funds two months before fiscal year-end (earlier than the traditional May 31 deadline) may disrupt routine public sector operations, analysts warn, as ministries may lack clarity about their final financial needs.
Toward Inclusive and Sustainable Growth
Without a foundation in social development, any model focused solely on economic indicators risks producing social exclusion and unsustainable outcomes. To build a resilient and inclusive economy, investing in people must take precedence over short-term financial metrics.
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