Sindh Budget 2026-27: PRAC raises the alarm over ‘deep’ development cuts

KARACHI: The Policy Research and Advisory Council (PRAC) has expressed serious concern over the Sindh Government’s Budget for Fiscal Year 2026-27, warning that a deteriorating fiscal position, substantial cuts in development spending, and continued underfunding of Karachi and local governments threaten to undermine the province’s long-term growth, competitiveness, and service delivery capacity.

PRAC Chairman Mohammad Younus Dagha noted that while the budget contains several welcome measures, including the decision not to impose new taxes, the overall fiscal strategy raises important concerns regarding sustainability, development priorities, and fiscal decentralisation.

He appreciated the allocation of Rs 16.7 billion for Thar Coal infrastructure and the release of upfront provincial equity for the Rs 90 billion Thar-to-Port Qasim Railway Project, describing the project as strategically important for supplying the country’s industrial base with lower-cost domestic energy.

However, he cautioned that the Federal Government’s allocation of only Rs 2 billion against its committed Rs 45 billion share continues to pose a significant risk to timely project completion.

Despite some positive initiatives, the Council observed that the budget reflects limited willingness to mobilise underutilised provincial revenue bases, particularly agricultural income tax, despite repeated commitments to strengthen provincial fiscal autonomy. This continued dependence on federal transfers leaves Sindh vulnerable to future fiscal shocks and revenue uncertainties at the federal level.

PRAC’s most serious concerns relate to the scale of reductions in development expenditure. Total development spending is budgeted to decline by 23.7 percent, falling from Rs 944 billion to Rs 720.4 billion. The Provincial Annual Development Programme has been reduced by 12.5 percent, while the District Annual Development Programme has been cut by a staggering 62.5 percent, from Rs 40 billion to only Rs 15 billion.

The Council also noted that Karachi continues to receive development allocations well below a reasonable population-based benchmark. Given the city’s contribution to national and provincial economic activity, the persistent shortfall in development spending raises concerns about the sustainability of infrastructure, transport networks, and public services required to support future growth.

Chairman PRAC further expressed concern regarding the continued treatment of the Sindh Infrastructure Development Cess (SIDC) as general provincial revenue rather than a dedicated source of infrastructure financing. The cess is projected to generate approximately Rs 140 billion during FY2026-27, yet these resources continue to be absorbed into the general budget rather than reinvested in the logistics, transport, and infrastructure systems that generate them. The Council warned that this practice deprives Karachi and other economic centres of critical infrastructure investment needed to sustain economic activity and improve competitiveness.

On local governance, PRAC highlighted a further decline in fiscal support to local governments. Transfers to local bodies have fallen from Rs 166 billion to Rs 155 billion, reducing local governments’ share of provincial revenues from 6.3 percent to 5.1 percent. This decline comes despite growing demands for municipal services, urban management, water supply, sanitation, and local infrastructure development. The Council noted that the situation is compounded by the continued absence of a functional Provincial Finance Commission (PFC) since FY2008-09 and the longstanding non-disbursement of local governments’ constitutionally mandated one-sixth share of GST transfers since FY2010.

PRAC concluded that while Budget 2026-27 appropriately avoids additional taxation and contains several targeted initiatives, the overall fiscal framework reflects troubling trends in development prioritisation, revenue mobilisation, and local government financing. The Council urged the Sindh Government to accelerate structural reforms, including the operationalisation of a functional Provincial Finance Commission, the ring-fencing of the Sindh Infrastructure Development Cess for Karachi’s infrastructure investment, and stronger efforts to broaden provincial revenue sources, particularly agricultural income taxation.

Copyright Business Recorder, 2026