Business Recorder Editorials 18Th August 2026

Cost of fiscal stability

EDITORIAL: Since 2022, all budgets have been presented under the premiership of Shehbaz Sharif. The report card is mixed. Overall public debt and liabilities reached Rs98 trillion, or 77 percent of GDP. Within this, gross public debt stood at Rs86.7 trillion, up 76 percent over the last five years.

However, in terms of GDP, public debt has declined from 73.9 percent in FY22 to 68.3 percent, primarily due to the government running primary fiscal surpluses for three consecutive years.

Finally, the government is getting some fiscal space. The more important measure is not debt-to-GDP, but rather the government’s ability to service its debt. In FY22, debt servicing consumed 85 percent of net federal revenues, which worsened to 122 percent in FY23.

Thereafter, the government started running primary fiscal surpluses: 0.9 percent in FY24, 2.4 percent in FY25 and 2.9 percent in FY26. As a result, both the debt-to-GDP and debt-servicing-to-revenue ratios have declined. The latter has now fallen to 66 percent in FY26, almost half its level in FY23.

The journey was not easy, especially for taxpayers and employment seekers. The government doubled down on taxation on an already skewed tax base to generate additional revenues, mainly to service debt, at a time when monetary policy was tight and inflation was skyrocketing. The other element was suppressing development spending, which has resulted in lower growth and fewer employment opportunities.

Thus, although both debt-to-GDP and debt servicing-to-revenue ratios have declined, the concern is that higher taxation could choke private investment, while restrained development spending could constrain growth. This should be more of a worry for the government than a reason to celebrate.

The catch is not simply to lower debt, but to reduce borrowing for non-productive purposes. Over the past thirty years, Pakistan’s debt dynamics have been dismal compared with the rest of the world.

Pakistan’s debt-to-GDP ratio is not exceptionally high, but a majority of countries with higher debt ratios have recorded stronger GDP-per-capita growth than Pakistan. Pakistan is also an outlier in terms of the average ratio of interest payments to government revenues.

This is not sustainable. The government restructured its debt in the early 2000s and subsequently had another spell of running primary fiscal surpluses for six consecutive years, from FY99 to FY04. That provided some breathing room, but inefficient use of borrowed funds eventually took the country back to the tipping point in 2022-23.

Another reversal is now in the making. This may give us a few years of growth going forward.

However, without addressing the structural weaknesses, including broadening the tax base, improving spending on social indicators, reducing the government’s regulatory footprint, improving governance and enhancing national savings, these improvements are likely to be short-lived.

The point is that the government cannot focus on a singular metric of running fiscal surpluses, alongside tight monetary policy, to provide a platform for growth. That would offer only a short-lived reprieve, even if growth does materialise.

The focus should instead be on enhancing economic productivity through the right mix of policy measures.

However, there is little in sight. The celebration will likely remain focused on headline numbers that are largely driven by the IMF programme.

The finance ministry may highlight the reduction in the debt-to-GDP ratio, lower debt servicing-to-revenue, declining interest rates, a fiscal deficit at 22-year low, and consecutive primary fiscal surpluses.

The question, however, is: at what cost have these stabilisation gains been achieved? Poverty has risen over the past five years, investment has dwindled, and confidence in long-term economic stability has eroded. Without addressing these issues, it will simply be more of the same.

Oversight of public finances

EDITORIAL: The US State Department in its annual Fiscal Transparency Report for the year concluded that there was a need to strengthen Pakistan’s parliamentary oversight of public finances, highlighting three principal steps that would improve fiscal transparency: (i) making budget proposals publicly available; (ii) detailed information on government debt obligations, including those of state owned entities; and (iii) subjecting the budget of military and intelligence agencies to parliamentary oversight.

The Foreign Office promptly responded to these observations by insisting that Pakistan adhered to internationally established best practices in respect of fiscal transparency, budgeting process and financial disclosures and that the country is currently on an International Monetary Fund (IMF) programme designed to focus on “structural reform, and improving financial management.”

The budget documents are routinely uploaded on the Ministry of Finance website on the day the budget is announced in parliament, usually three weeks prior to the close of the fiscal year on 30 June. It itemises all outlays, including military, and a medium-term debt strategy paper. In effect, the budget contains details of allocations though, in recent years, the source of revenue (particularly its rise under some specific heads) is noted in absolute terms rather than detailed as was the Federal Board of Revenue’s (FBR’s) practice in the past. The budget once tabled is then sent to the finance committees of the two houses where discussions lead to compilation of amendments/recommendations that may or may not be acceptable to the government.

As per officials of the Ministry of Finance, their ability to change major budgetary recipients is severely limited, particularly with reference to the debt-servicing costs, defence (given the ongoing terror threats in the country), and pensions (with the taxpayers funding the pensions of state employees), which cumulatively constitute 70 percent of the country’s total current expenditure and 67 percent of total expenditure for 2026-27. Running of civilian government, and subsidies based largely on the flawed policy to ensure tariff equalization throughout the country explains why the Benazir Income Support Programme (BISP) is severely limited – no more than 4 to 5 percent of total outlay; however, it needs pointing out that even BISP allocation is now a condition for the IMF loan, as the government was compelled to raise allocations per beneficiary, with the ever-present threat of delay in reaching a staff level agreement that would suspend the tranche release.

However, as in the case of most laws enacted by parliament in Pakistan based on best international practices there is many a slip between approval and implementation. In the case of the budget two major persistent issues have been raised by Business Recorder. First and foremost, the revenue generation budgeted target has been too optimistic, with IMF concurrence, and is cited as a major reason for the sustained failure of the country to reach the regional average growth rate. And secondly, our parliamentarians remain almost indifferent to allocations and revenue in the budget with little or no debate, other than those that would impact on the pressure groups.

The budget for 2026-27 is the most elitist budget in the country’s history with respect to not only allocations but source of revenue and the parliamentarians’ indifference to these measures is now taken disturbingly as the norm. Unless this changes fiscal transparency will remain a pipedream.