BUDGET 2026-27: Centre, Punjab & Sindh agree on spending cuts

• Budget likely on Friday after president summons NA, Senate sessions today
• National Economic Council finally set to meet today; KP still weighing participation
• Federal, provincial govts to jointly cover Rs800bn shortfall
• Extra FBR revenue to stay with Centre; ‘strategic needs’ may require Rs1.3-1.7tr
• Sindh, Punjab agree to cut ADPs; KP, Balochistan not yet on board
• Uplift plans worth Rs4.715tr likely to be revised down

ISLAMABAD: Signs that the federal budget may be presented later this week emerged on Tuesday after the government finally called a meeting of the National Economic Council (NEC) on the same day that sessions of the National Assembly and Senate were summoned by President Asif Ali Zardari.

A source in the NA Secretariat told Dawn that both sessions have been called budget sessions for 2026–27; however, it is expected that the budget will be presented in parliament on June 12.

This echoed Parliamentary Affairs Minister Tariq Fazal Chaudhry’s words, who said on Tuesday that the budget for the next fiscal year would likely be presented in parliament on Friday.

The NEC, meanwhile, is set to meet today (Wednesday) to finalise federal and provincial development plans after a broader agreement on cutting development and other expenditures at all tiers of the federation to cover around Rs800 billion revenue shortfall this year and jointly create similar, but higher, fiscal space next year for additional “strategic needs”.

Under the agreement reached between the PPP and PML-N, provincial shares from the federal divisible pool would stay frozen at the current fiscal year’s position. Any increase in FBR revenue next year on top of the current year’s collection would be retained by the Centre, informed sources said.

To avoid permanence and legal precedent, an ad hoc mechanism would be put in place under which the Centre would transfer full provincial shares to provincial accounts and the provincial governments would then credit the extra amount — higher than what they received this year — back to the Centre.

The sources said the additional amount being discussed for next year to be given up by the provinces was not fixed but dynamic, depending on FBR revenue collection, and could range anywhere between Rs1.3 trillion and Rs1.7tr.

To ensure that these additional amounts remain protected in favour of the Centre, both Sindh and Punjab would drastically cut their planned annual development plans (ADPs) for next year and reduce other expenditures. For this, the recent pattern of utilisation of petroleum subsidy by the Centre and provinces had already been practised, the sources said.

Interestingly, smaller provinces — Balochistan and Khyber Pakhtunkhwa — were not part of the deal so far. Moreover, the KP government was reportedly still going through internal political consultations on whether to participate in the NEC meeting.

There were, however, conflicting reports about additional fiscal space for the Centre’s strategic needs next year. Some sources said the PPP had been told that customs duty was not part of the list to be included in the Federal Consolidated Fund under Article 160(3) of the Constitution, but had been made part of the divisible pool under the National Finance Commission through a presidential order and could be removed from the list through a presidential order.

This adjustment, they said, could provide close to Rs1tr in additional fiscal cushion to the Centre next year. For the current year, the target for customs duty was set at Rs1.588tr, resulting in a provincial share of Rs892bn. However, such an option involved political and permanent complications and was eventually dropped.

PPP’s former finance minister and member of the negotiating team Saleem Mandviwalla told Dawn that the idea of excluding customs duty from the divisible pool was “nonsense” and stood no­­w­­here now. He, however, confir­med that an agreement had been reached on the Centre and provinces jointly covering the revenue shortfall this year and next year.

Responding to a question, he said development expenditures as well as other expenses would be cut across the provinces and the Centre. He said next year’s additional fiscal requirement would be flexible, ranging between Rs1.2tr and Rs1.5tr or so.

“There was disagreement on procedures which has been settled now,” he said, adding that under the agreement, whatever the requirement may be, it would be jointly covered by the Centre and the provinces. Declining to share details, he said it would be done within existing resources and without additional taxes.

In return, informed sources said, the PPP reportedly secured an increase in federal funding for the Sukkur-Hyderabad Motorway (M6) from Rs20bn cleared by the Annual Plan Coordination Committee to about Rs70bn, along with commitments for its actual utilisation and accelerated progress during the coming fiscal year, not just an allocation on paper.

The sources said the federal finance ministry had earlier indicated a maximum 7pc increase in salaries based on average inflation, but the freeze on provincial shares would mean no such facility for provincial employees.

As a result, the NEC would significantly revise downwards federal and provincial development plans worth Rs4.715tr for the next fiscal year amid conflicting fiscal needs of critical political and institutional stakeholders.

The sources said the Centre’s Rs1.126tr Public Sector Development Programme, as well as the combined provincial development portfolio of Rs3.138tr, would be brought down.

Originally, the Rs3.138tr provincial ADPs for next year shared with the APCC last week included Punjab’s Rs1.45tr allocation, up 17pc and accounting for 46pc of the total. This was followed by Sindh’s restrained development indication of Rs816bn compared to its current fiscal year allocation of Rs887bn, down 8pc.

KP also showed a higher development envelope of Rs564bn for next year, up almost a quarter from Rs455bn in the current fiscal year. On top of hefty federal allocations for the province, Balochistan had also pitched its ADP size at Rs308bn next year, up 10pc from Rs279bn this year.

The NEC — the highest economic decision-making forum of the federation, led by the prime minister and comprising the four chief ministers and four federal ministers — has a four-point agenda for the meeting.

The first item pertains to a review of the Annual Plan 2025-26, approval of the Annual Plan 2026-27 and a presentation on key socio-economic indicators of the provinces.

This will be followed by a review of Public Sector Investment 2025-26, the proposed Public Sector Investment 2026-27 and confirmation of changes made in the PSDP 2025-26 through addenda, corrigenda and adjustments on the directives of the prime minister, including a cut of around Rs175bn.

The meeting will also include presentations on provincial annual development plans by the four chief secretaries.

Besides, the NEC will take up a progress report of the Central Development Working Party from April 1, 2025, to March 31, 2026, and schemes approved by the CDWP and the Executive Commi­ttee of the National Economic Council during the same period.

Syed Irfan Raza in Islamabad also contributed to this report

Published in Dawn, June 10th, 2026