very year, within days of the budget being presented in the National Assembly, Pakistani newspapers fill with commentary. The numbers are dissected, the deficits are lamented, the tax measures are applauded [rarely] or condemned [mostly] and the subsidies are traced to their beneficiaries. Necessary work, but the same every year. This commentary rarely raises a fundamental question: what does it actually take for a country at Pakistan’s level of development to stop being a country at Pakistan’s level of development?

South Korea, Taiwan, Malaysia, Vietnam and Bangladesh, even Rwanda, began with poverty levels, institutional weaknesses and resource constraints comparable to Pakistan’s. They are not there any longer. What they did differently — and what this budget tells us about whether Pakistan intends to follow — is worth examining.

The first thing countries that successfully climbed the income ladder did was invest in people — broadly and at the base. South Korea, Taiwan, Malaysia and Vietnam did not begin with world-class universities. They began with classrooms: universal primary education, functional literacy, children who could read and calculate. Elite institutions came later, after the foundation was in place. Pakistan’s federal budget for 2026-27 allocates Rs 118 billion to education — roughly 1.5 percent of discretionary federal spending once interest payments and defence are set aside. Of that already modest sum, 72 percent goes to tertiary education. Pre-primary and primary schooling receives 5 percent. The Higher Education Commission alone receives more in development funding than the entire current allocation for education below the university level. Pakistan is trying to build the pyramid from the apex downward.

Into the vacuum left by underfunded schools has stepped a parallel economy of quick fixes: political parties running mass computer literacy camps, Jamaat-i-Islami filling a Karachi stadium with young people for a few days of coding instruction and an eco-system of social media influencers telling Pakistan’s youth that a short course in freelancing is a more reliable path to income than a university degree. In a country where degrees often lead nowhere, the messaging is not entirely unfounded. But the countries that transitioned did not do so because their young people found freelance clients; they did so because their workforce could be absorbed into sectors that demanded sustained, verifiable competence — the kind that only long-form education reliably produces.

The second common thread running through successful income transitions is a deliberate shift toward labour-intensive, export-oriented manufacturing. South Korea, Malaysia, Taiwan and later Vietnam did not wait for comparative advantage to reveal itself. Their governments made active choices: they identified sectors where their workforce could compete internationally, directed credit and infrastructure toward those sectors and tied continued support to export performance. The results were not incidental; they were designed. Pakistan’s budget for 2026-27 allocates Rs 46 billion to mining and manufacturing under economic affairs — one quarter of one percent of federal expenditure. Development spending on the Industries and Production Division has risen to Rs 6.6 billion, which sounds encouraging until one notes that the Board of Investment, the agency whose explicit mandate is to attract foreign capital into Pakistan, has seen its development allocation cut from Rs 1.1 billion to Rs 761 million.

The subsidy table tells the more complete story. Of the Rs 1,091 billion in subsidies, Rs 830 billion — 76 percent — goes to the power sector. Industries and Production receive Rs 37 billion, or just over three percent of the subsidy envelope. For every rupee the budget directs toward productive industry, it spends more than twenty-two on keeping electricity artificially cheap for a transmission system that remains structurally unreformed.

There is one genuinely positive signal: the Export Refinance Scheme allocation has jumped from Rs 30 billion to Rs 88 billion. This suggests some recognition that export-oriented firms need cheaper credit to compete. But a financing subsidy without complementary investment in industrial capacity, workforce skills or technology absorption is a partial measure — useful at the margin, insufficient as a strategy.

Successful industrial policy, as practiced by the countries that actually transitioned, was never simply a matter of directing money toward favoured sectors. The more important feature was discipline: support was conditional, time-bound and tied to measurable performance. South Korea’s industrial conglomerates received state backing, cheap credit and protected markets — but only for as long as they delivered export growth. When they failed to perform, support was withdrawn. The mechanism that separated developmental states from mere subsidy dispensers was not generosity but accountability.

Pakistan’s budget offers no such architecture. The federal government’s entire current investment portfolio — equity stakes, strategic positions, developmental holdings — amounts to Rs 4.3 billion, down 58 percent from last year, spread across three entries of which the most significant supports housing finance. There is no equity position in any industrial enterprise, no strategic state investment in manufacturing, technology or export capacity. The subsidies directed toward industry, meanwhile, carry no visible conditionality. The Rs 37 billion allocated to Industries and Production arrives without benchmarks, without export targets, without any stated mechanism for withdrawal if the support fails to generate productive output. This is not industrial policy in the sense that transformed South Korea or Malaysia; it is subsidy without strategy — spending that creates dependence rather than capability.

Technology transfer was never incidental to the income transitions of East and Southeast Asia — it was engineered. South Korea, Malaysia and later Vietnam did not wait for multinational firms to arrive on their own terms. They created conditions: special economic zones with reliable infrastructure, investment facilitation agencies with genuine authority, workforce training pipelines that gave foreign firms a reason to locate production locally rather than simply sell into the market. The goal was not foreign presence for its own sake but the transfer of process knowledge, managerial competence and technical capability that domestic firms could subsequently absorb and adapt. FDI, in this model, was a vehicle for learning.

On almost every relevant indicator, the federal budget is headed in the wrong direction. Research and development spending — the measure of an economy’s capacity to absorb and adapt technology — has been cut from its revised level of Rs 40.6 billion to Rs 33.2 billion. The Board of Investment, whose mandate is to attract and facilitate foreign capital, has seen its development allocation reduced from Rs 1.1 billion to Rs 761 million. Information technology and telecommunications infrastructure receives Rs 19.6 billion in development spending, a modest increase, but digital infrastructure without the institutional capacity to channel foreign investment into productive domestic enterprise is connectivity without consequence. Pakistan is not building the conditions under which technology transfers; it is hoping technology arrives anyway.

The final factor distinguishing countries that transitioned from those that did not was the quality of the state itself — not its size, but its competence. South Korea’s Economic Planning Board, Singapore’s Economic Development Board, Malaysia’s Investment Development Authority: focused, insulated, technically capable agencies with clear mandates and the authority to act. The Punjab chief minister recently drew public attention to precisely this gap, observing that public sector work ethics fall short and that an unproductive civil service is a burden the state can no longer bear. The diagnosis is correct, but the instinct to demonise the workforce misidentifies the source of the failure. Public servants do not underperform because of personal failing — they underperform because the system offers no reason to do otherwise: no defined goals, no performance benchmarks, no consequences for non-delivery and no rewards for results. The budget does nothing to change this. The cost of running civil government rises 10 percent to Rs 1,071 billion, buying more headcount and more overhead rather than more output. Institutional reform is not a human resources problem; it is a systems problem. Systems problems require redesign, not reprimand.

The countries that climbed out of low-income status made deliberate, sequenced investments in people, productive industry, conditional state support, technology and governance. Pakistan’s budget for 2026-27 is not without merit — the jump in export refinancing is a genuine signal. But a budget that directs 76 percent of its subsidies to the power sector, cuts research and technology spending, shrinks the investment facilitation budget and funds universities while starving primary schools is not a budget oriented toward transition. It is a budget oriented toward maintenance — of existing constituencies; of entrenched arrangements; of a trajectory that has not changed in decades. The question is not whether Pakistan can balance its books; it is whether it intends to change.

The writer is a professor of economics at the Lahore Campus of COMSATS University, Islamabad.