Reflections on provincial budgets FY27—V

In the case of Punjab, current expenditure as per budgetary estimate for FY26 stood at Rs2.7 trillion, while revised estimates indicate an increase by Rs 248.3 billion to stand at around Rs3 trillion. At the same time, budgetary estimates for development expenditure for FY26 stood at Rs.1.2 trillion, while development spending as per revised estimate increased by Rs 100 billion to stand at Rs 1.3 trillion.

Having said that, not only is current expenditure much more than development expenditure, the gap has also increased from what was budgeted, and what is estimated to be actually spent. Here, budgetary estimates for current expenditure were 2.18 times more than the budgetary estimates for development expenditure for FY26, while in terms of revised estimates, current expenditure was 2.21 times more than development expenditure.

It needs to be noted that budgetary estimates for current- and development expenditures have not been provided for FY27, which is strange in view of the fact that Sindh, KPK, and Balochistan provide these estimates.

With regard to Sindh, budgetary estimates for FY27 for current expenditure were more than the budgetary estimates for FY26 by Rs 418 billion, and more than revised estimates by Rs 352.7 billion to stand at Rs2.6 trillion; whereas revised estimates for current expenditure for FY26 were of more than budgetary estimates by Rs 65.4 billion to stand at Rs2.2 trillion.

On the other hand, budgetary estimate for development expenditure for FY27 stood at Rs720.4 billion, which is less than the budgetary estimates for FY26 by Rs.298 billion, and less than revised estimates by Rs 223.6 billion.

Also read: Reflections on provincial budgets FY27—IV

Here, budgetary estimates for current expenditure for FY26 are 2.1 times more than the budgetary estimates for development expenditure, and the gap increases when seen in terms of revised estimates to 2.3 times, while in terms of budgetary estimates for FY27 the gap between current- and development expenditures increases all the more, and quite considerably, whereby current expenditure is 3.6 times more than the development expenditure.

It is strange that the ‘annual budget statement 2026-27’ for KPK does not include calculation on budget balance, and also not on primary balance. This author’s own calculations indicate that budgetary estimates for budgetary balance for FY27 stood at negative Rs48 billion, while budgetary surplus was targeted, given budgetary estimates for FY26 stood at negative Rs157 billion, revised estimates expected a budget deficit of Rs154.5 billion.

Here, budgetary estimates for provincial consolidated fund – composed of ‘general revenue receipts’ (which in turn includes ‘tax receipts’ and ‘non-tax receipts’), ‘development receipts,’ and ‘capital receipts (Account-I)’ – for FY26 stood at Rs 2.119 trillion, where revised estimates are expected to be less by Rs 232 billion, while budgetary estimates for FY27 are being targeted at Rs.2.122 trillion, which are more than the revised estimates by Rs 235 billion.

Also read: Reflections on provincial budgets FY27—III

Moreover, budgetary estimates for total expenditure for FY27 stood at Rs 2.170 trillion, which is more than the budgetary estimate for FY26 by Rs208 billion, and revised estimates for FY26 by Rs 128.5 billion.

Moreover, as per this author’s calculations, budgetary estimates for primary surplus for FY26 stood at Rs 207 billion. Having said that, the revised estimates for FY26 indicated a primary deficit of Rs 154.5 billion, which is being targeted to be narrowed to Rs.3 billion, given budgetary estimates for FY27. Here, budgetary estimates for debt servicing for FY26 stood at Rs 50 billion, while the revised estimates stood at Rs.40 billion, and budgetary estimates for FY27 stood at Rs 45 billion.

Here, a relative lack of increase in already low level of direct taxes, when compared with indirect taxes – that stood at Rs 811.4 billion as per budgetary estimates for FY27 – which are enhanced by Rs 108 billion over the revised estimates for FY26 to stand at Rs 695.4 billion, means that development expenditure is likely to receive the burden of drastically narrowing primary deficit, given current expenditures, in fact, have been budgeted for FY27 to increase by Rs.208.4 billion over the revised estimates for FY26 to stand at Rs.1.6 trillion, while budgetary estimates for FY27 for development expenditure have been slashed by Rs 84.2 billion over the revised estimate for FY26 – and over the budgetary estimate for FY26 by Rs 22.7 billion –to stand at Rs 524.3 billion.

Also read: Reflections on provincial budgets FY27—II

Here, it needs to be indicated that fiscal consolidation – or fiscal austerity, one way is to pursue primary surplus, for instance – not only negatively impacts economic growth, inclusivity, and resilience, but also has political economic implications, as a ‘Vienna Institute for International Economic Studies’ May 2026 published working paper ‘Fiscal consolidation and political instability’ by Philipp Heimberger, and Anna Matzner indicated that it accentuated the situation of political instability.

Taking the case study for advanced countries, where, according to the paper, ‘As fiscal deficits and public debt ratios remain high across many advanced economies compared with their pre-pandemic and pre-energy-crisis levels, governments are under pressure to undertake fiscal consolidation to strengthen their public finances… Studying the political consequences of fiscal tightening is essential for understanding the conditions under which efforts to restore public finances may destabilise governments and societies, thereby potentially hindering economic development and undermining effective policy making’ it needs to be indicated that the impact of fiscal consolidation may likely be more acute in the case of developing countries, with relatively much higher development, welfare, and resilience needs, especially which are also highly vulnerable to climate change, and commodity shocks, like Pakistan, where also a significant proportion of population is below the poverty line.

Also read: Reflections on provincial budgets FY27—I

With regard to the results of their study, the working paper taking ‘…a sample of 17 countries of the Organisation for Economic Co-operation and Development (OECD) over the 1980-2020 period’ pointed out, ‘We estimate the effects of fiscal consolidation shocks across these outlined dimensions of political instability– government approval, major government crises, anti-government demonstrations, and general strikes– over the short to medium term. …we find that fiscal consolidation affects political-instability outcomes mostly in the short run.

Following a fiscal consolidation shock, governments face declining approval and increased probability of protest activity and government crisis. While the state of the economy and the composition of consolidation shape approval dynamics, acute forms of political instability appear to respond mainly to the overall contractionary fiscal stance.’

(Concluded)

Copyright Business Recorder, 2026