Pakistan’s fiscal policies over the past decade and a half have been anything but prudent, as evident from the nation’s chronic and unmanageable fiscal deficits. These deficits have been the result of successive governments’ persistent overspending, largely to maintain the extravagant lifestyles of the ruling elite. Since 2010, Pakistan’s headline fiscal deficit has averaged over 6.3% of GDP annually, with the figure ballooning to nearly 7.4% in the last five years alone. This reckless financial management has led to the accumulation of a massive and unsustainable debt burden.
Despite the government’s promise to reduce the fiscal deficit to just under 6% this year, as per the agreement with the International Monetary Fund (IMF), the budget still faces an enormous shortfall of Rs8.5 trillion, an increase from last year’s deficit of Rs8.3 trillion. To cover this gap, the government is compelled to borrow extensively, either by rolling over existing debt or by securing new loans to pay off the maturing external debt within the current fiscal year.
The plan to borrow Rs32 trillion this year, to both fund the budget and pay off foreign loans, is alarming but unsurprising given Pakistan’s deteriorating fiscal health. This figure underscores the nation’s growing reliance on debt, with the annual gross financing needs now reaching an unsustainable 26% of GDP. The government’s ability to implement this borrowing plan is heavily dependent on the approval of the recently concluded $7 billion IMF deal, as well as China’s willingness to roll over $7.9 billion in debt. However, both of these are fraught with uncertainty and challenges, reflecting the precariousness of Pakistan’s financial situation.
The current fiscal crisis is not a sudden development; it is the result of years of irresponsible spending, poor policy choices, structural flaws, and economic underperformance. While support from the IMF and China may offer some temporary relief, it will not address the underlying issues. For Pakistan to achieve long-term debt sustainability and economic recovery, it must significantly reduce its fiscal deficit to below 3% of GDP. This requires a concerted effort to boost tax revenues and drastically cut wasteful expenditures that serve only to benefit the rent-seeking classes.
However, history has shown that Pakistan’s politicians and economic policymakers have consistently failed to rise to this challenge. Time and again, they have opted for short-term fixes and borrowed their way out of financial difficulties, rather than implementing the tough reforms needed to secure the nation’s economic future. Without a fundamental shift in fiscal policy and a commitment to genuine reform, Pakistan’s debt burden will continue to grow, leading to further economic instability and hardship for its people.
The path to fiscal prudence is not easy, but it is necessary. Pakistan cannot afford to continue its current trajectory of financial mismanagement. The government’s ongoing reliance on borrowing to finance its lavish spending is unsustainable and will only exacerbate the nation’s economic woes. It is time for Pakistan’s leaders to demonstrate true fiscal responsibility by enacting reforms that promote long-term stability, rather than continuing down the road of short-term expediency. The cost of inaction is too great, and the consequences of continued fiscal irresponsibility will be felt for generations to come.