EDITORIAL: For years, the accepted wisdom in Pakistan’s economic policymaking circles has treated the country’s fiscal distress as a problem that primarily begins and ends with low tax collection.
A fresh analysis cited by former caretaker commerce minister Gohar Ejaz, however, underscores a harder truth economists have long flagged: ballooning government expenditure has repeatedly outpaced revenue gains, reducing higher taxes into little more than a stopgap while debt continues to mount. Pakistan’s challenge, at its core, then is an expenditure crisis, one where runaway state spending, and not just taxpayer failure, is pushing public debt to unsustainable levels and exposing the limits of the government’s current economic playbook.
Recently-released data by the Economic Policy and Business Development think tank that Ejaz chairs decisively dismantles the notion that the country’s fiscal troubles stem from inadequate taxation. Between FY15 and FY25, tax revenue expanded by an extraordinary 302 percent, from Rs 2.91 trillion to Rs 11.7 trillion. This was an outcome driven by successive tax hikes, the withdrawal of exemptions and a regressive tax regime that repeatedly targets the same narrow, documented segments of the economy while leaving large swathes undertaxed. Yet even allowing for persistent under-taxation and the dominance of undocumented economic activity — problems that unquestionably require urgent correction — the public debt trajectory over the same decade makes it blatantly clear that our fiscal crisis has been fuelled far more by the scale and structure of government spending, with public debt rising by a staggering 365 percent from Rs 17.3 trillion to Rs 80.5 trillion, inflating debt servicing costs and decisively outpacing revenue growth.
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These figures expose a disturbing distortion at the heart of Pakistan’s public finances that sees each extra rupee extracted in taxes matched by Rs 7.2 in new borrowing. In absolute terms, this amounts to tax receipts rising by Rs 8.79 trillion, while total debt soared by Rs 63.2 trillion. Furthermore, this imbalance has only hardened in recent times. Over the past three years, domestic debt servicing has emerged as the single largest source of expenditure growth, steadily squeezing development spending and choking off productive investment — precisely the kind of spending needed to arrest the debt spiral.
Debt accumulation, in itself, need not be destabilising if it is deployed strategically and is used to finance growth-enhancing infrastructure, build human capital, or expand the economy’s productive capacity in ways that generate future returns. In Pakistan, however, an increasing share of borrowing is being consumed simply to service past liabilities. And what little room remains is further devoured by other non-development expenditures: government departments routinely overshooting their budgets, an entrenched reluctance to rein in lavish state spending, a pensions bill that continues to expand, and a governance framework that structurally encourages higher spending: civil administration remains overstaffed and poorly streamlined, and ministries that should have been devolved to the provinces under the 18th Amendment continue to function at the federal level, entrenching inefficiency and inflating government spending. Austerity drives are announced with much fanfare, but rarely have they been matched by the political will required to cut wasteful spending or enforce meaningful fiscal discipline, ensuring that adjustment remains cosmetic while the underlying fiscal rot deepens.
The fact of the matter is that continued reliance on higher taxes, without reining in public spending will only further shrink the formal sector, weaken export competitiveness, and deter both domestic and foreign investment. The reality is clear: sustainable economic recovery depends on sharply reducing borrowing and dismantling the entrenched culture of profligacy within government. Breaking the seemingly endless cycle of borrowing, debt servicing and revenue shortfalls is essential to restore long-term fiscal stability, and the government must realise that meaningful austerity that enforces genuine spending discipline and reforms inefficiencies is the only viable path forward.
Copyright Business Recorder, 2026
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