Pakistan is allocating a combined 1.6 per cent of its GDP to education and healthcare — among the lowest in the region — raising serious questions about the country's long-term human development trajectory and economic competitiveness, according to data cited from Pakistan's Economic Survey 2025-26.

The Numbers Behind the Shortfall

Public spending on education stands at just 0.8 per cent of GDP, mirroring an equally thin 0.8 per cent allocated to health. According to a report published in The News Pakistan, education spending has declined in recent years while health expenditure has largely stagnated — a combination that critics argue is incompatible with any credible development agenda.

Notably, this underinvestment persists even as Pakistan pursues fiscal consolidation targets under external pressure, suggesting that social sectors are bearing a disproportionate share of the adjustment burden.

How the FY26-27 Budget Tightens the Squeeze

The situation is expected to worsen under Pakistan's FY26-27 budget, which requires provinces to generate approximately Rs 1.9 trillion in fiscal surpluses while contributing nearly Rs 1 trillion toward federal fiscal objectives. Since education, healthcare, water, sanitation, local infrastructure, and much of social protection fall under provincial jurisdiction, this fiscal architecture leaves provinces with sharply reduced room to expand human development spending.

The arrangement, analysts argue, effectively subordinates social investment to macroeconomic targets — a trade-off with compounding long-term costs.

A Human Development Crisis in the Making

The consequences are already visible. Nearly four in every ten Pakistani children under the age of five suffer from stunting, which can cause irreversible physical and cognitive damage. National poverty levels have risen in recent years, and Pakistan continues to rank near the bottom of global human development indicators, with weak learning outcomes and public health metrics lagging behind regional peers.

This is not a new pattern. Pakistan has entered more than two dozen IMF programmes since 1958, repeatedly achieving short-term macroeconomic stability without delivering the structural transformation needed to lift living standards durably.

The Innovation Paradox

The report also challenged Pakistan's growing emphasis on artificial intelligence, startups, and digitisation, arguing that innovation-driven economies require sustained prior investment in education, research, universities, skills, and entrepreneurship. Without that foundation, digital ambitions risk remaining aspirational rather than transformative.

Underinvestment in education, healthcare, and skills development, the report warned, poses a direct threat to productivity growth, export competitiveness, and long-term economic prosperity — making the current fiscal calculus a gamble with generational consequences.

What Needs to Change

Experts cited in the report suggest that reversing the trend requires Pakistan to decouple social sector spending from provincial surplus mandates and establish floor-level allocations for education and health that are insulated from fiscal consolidation cycles. Without structural reform in how social spending is protected, the country risks locking in a low-human-capital equilibrium that no amount of macroeconomic stability can undo.