By Sardar Khan Niazi

Pakistan’s recurring dependence on borrowing is often portrayed as a temporary crisis brought about by external shocks, political instability, or unfavorable global conditions. While these factors matter, they do not explain why the country’s need for debt has become a permanent feature of economic management. The deeper problem lies in a structural mismatch between what Pakistan earns and what it spends. Every year, the government spends substantially more than it collects in taxes. To bridge this fiscal gap, it borrows from domestic and foreign sources. In principle, borrowing can be justified if it finances investments that raise future productivity and revenues. In Pakistan’s case, however, a significant portion of borrowing is used to finance current expenditures, debt servicing, and losses of state-owned enterprises rather than productive investments. The tax system remains at the heart of the problem. Pakistan’s tax-to-GDP ratio is among the lowest in comparable emerging economies. Large segments of the economy remain either lightly taxed or outside the tax net altogether. The burden falls disproportionately on salaried workers and documented businesses, while powerful sectors often enjoy exemptions and preferential treatment. As a result, government revenues have consistently failed to keep pace with spending requirements. Compounding the challenge is the country’s chronic external imbalance. Pakistan imports far more than it exports. Industrial production relies heavily on imported fuel, machinery, and raw materials, creating persistent pressure on foreign exchange reserves. When export earnings and remittances are insufficient to cover import bills, the country turns to external borrowing to fill the gap. This cycle has repeated itself across multiple governments and economic programs. Another factor driving the growth of debt is the rising cost of servicing existing obligations. As debt accumulates, interest payments consume a larger share of government revenues. Increasingly, new borrowing is used not to finance development but to repay old loans and interest obligations. This creates a debt treadmill from which it becomes progressively harder to escape. The energy sector illustrates how structural inefficiencies translate into borrowing needs. Circular debt continues to grow because of transmission losses, poor bill recovery, pricing distortions, and governance weaknesses. The government ultimately bears much of this burden, adding to fiscal pressures and borrowing requirements. Political incentives have also contributed to the problem. Successive governments have often prioritized short-term growth and popular spending measures over difficult reforms. Tax broadening, privatization of loss-making enterprises, and reductions in inefficient subsidies are politically costly decisions. Borrowing, by contrast, provides immediate relief while postponing the burden to future administrations and taxpayers. External lenders, including multilateral institutions and friendly countries, have periodically helped Pakistan avoid balance-of-payments crises. However, financial assistance addresses symptoms rather than causes. Each stabilization program restores short-term liquidity, but without fundamental reforms the underlying vulnerabilities remain intact. The consequence is a cycle familiar to Pakistan’s policymakers and citizens alike: rising imports and fiscal deficits lead to reserve depletion, emergency borrowing, stabilization measures, temporary recovery, and then a return to the same imbalances. Debt therefore continues to grow not because Pakistan borrows too much in a single year, but because it has yet to resolve the structural weaknesses that make borrowing necessary year after year. Breaking this cycle requires more than securing another bailout package. It demands sustained efforts to expand the tax base, increase exports, improve productivity, reform state-owned enterprises, reduce energy sector losses, and strengthen fiscal discipline. Without such measures, borrowing will remain not an emergency response but a permanent feature of Pakistan’s economic landscape. The central question is no longer why Pakistan borrows. It is why the country continues to generate conditions that make borrowing unavoidable.