Pakistan’s fiscal landscape stands at a critical juncture, balancing the urgent need for economic stability with the imperative of sustainable growth. With public debt hovering at 72% of GDP and debt servicing consuming 54% of federal revenues, the country faces mounting pressure to optimize resource allocation, broaden its tax base, and prioritize high-impact expenditures. While recent reforms like the Public Finance Management Act (PFM) 2019 and the Treasury Single Account (TSA) have introduced structural improvements, systemic inefficiencies persist—tax evasion, fragmented spending, and underinvestment in human capital. Addressing these challenges demands a blend of policy innovation, institutional accountability, and strategic partnerships to transform fiscal management into a catalyst for equitable development.
Current Fiscal Landscape: Challenges and Constraints
Pakistan’s fiscal strategy grapples with three core issues:
- Revenue Mobilization: A narrow tax base (tax-to-GDP ratio: 10%) exacerbated by evasion and sectoral exemptions. Only 2.5 million filers exist among a population of 240 million.
- Expenditure Inefficiencies: Non-development spending (salaries, pensions, subsidies) claims 70% of the federal budget, leaving scant room for infrastructure or social programs.
- Debt Dependency: Reliance on costly external borrowing (external debt: $130 billion) amid shrinking forex reserves ($14.3 billion as of 2023).
Key Fiscal Metrics (2023)
| Indicator | Pakistan | Regional Avg. |
|---|---|---|
| Tax-to-GDP Ratio | 10% | 15% |
| Public Debt (% GDP) | 72% | 60% |
| Development Spending (% GDP) | 3.2% | 5.1% |
Existing Reforms: Building Blocks for Stability
Recent policies aim to instill fiscal discipline:
- PFM Act 2019: Introduced multi-year budgeting, debt ceilings, and transparency mandates, cutting off-budget expenditures by 60% since 2020.
- Treasury Single Account (TSA): Consolidated 25,000+ federal accounts, reducing idle cash from Rs. 450 billion to Rs. 90 billion.
- Benazir Income Support Programme (BISP): Digitized cash transfers to 9 million families, improving social safety net efficiency.
However, uneven implementation—particularly in provinces—and political resistance to austerity measures limit impact.
Strategic Priorities for Sustainable Fiscal Management
- Expand the Tax Net:
- Digitize Tax Administration: AI-driven analytics to identify non-filers (estimated 3 million potential taxpayers).
- Rationalize Exemptions: Phase out sectoral waivers, especially in real estate and agriculture.
- Harmonize GST: Standardize rates across federal and provincial tiers to curb evasion.
- Reprioritize Expenditures:
- Shift to Outcome-Based Budgeting: Link 30% of departmental allocations to measurable KPIs (e.g., literacy rates, vaccination coverage).
- Cap Non-Development Spending: Gradually reduce subsidies (Rs. 1.4 trillion in FY2024) via targeted cash transfers.
- Leverage Public-Private Partnerships (PPPs):
- Energy & Transport: Attract private investment in renewables (solar, wind) and toll roads under build-operate-transfer (BOT) models.
- Tech-Driven Governance: Collaborate with fintech firms to digitize land records and municipal services.
- Strengthen Fiscal Federalism:
- Provincial Capacity Building: Train 1,000+ officers in MTBF and data analytics via World Bank partnerships.
- Performance-Linked Grants: Tie federal transfers to provincial reforms in tax collection and service delivery.
Overcoming Implementation Hurdles
- Political Consensus: Engage opposition through parliamentary committees to depoliticize reforms.
- Judicial Backing: Enforce PFM Act penalties via special tribunals for non-compliance.
- Public Awareness: Launch campaigns (e.g., Tax for Progress) to build taxpayer trust.
Pakistan’s fiscal sustainability hinges on transcending short-term fixes to embrace systemic change. By anchoring policies in transparency, inclusivity, and innovation, the country can redirect resources toward productivity-enhancing investments—education, healthcare, and climate resilience. The path is arduous, but the cost of inaction—economic stagnation and social unrest—is far greater.
This article was published on PublicFinance.pk.
