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Fixing budget to unleash growth
Every year, Pakistan's federal budget arrives with familiar choreography: a frantic scramble for revenue, a ritualistic promise of belt-tightening, a prayer for donor approval—and, inevitably, a deepening economic funk. The budget, instead of being a strategic tool to unleash growth and build reserves, has become a reactive exercise designed to appease creditors and perpetuate the status quo.
This is not just a budgeting problem—it is a full-blown political economy failure. To break this cycle, we must fundamentally reimagine the budget—not as a ledger-balancing ritual, but as the central engine of economic revival through a sustained growth acceleration.
Bloated government
Pakistan's budget has historically expanded alongside a steady growth in government spending—starting with the welfare and development spree of the Bhutto years. Since then, successive governments have continued to bloat expenditures, expand political patronage networks, and indulge in borrowed vanity projects. Unsurprisingly, the lion's share of the budget is now devoured by a bloated and inefficient government machinery—ministries, SOEs, elite subsidies, and ever-growing civilian and military pensions.
Development spending (PSDP) does not fare much better. It is either slashed mid-year or burned on politically motivated brick-and-mortar projects that neither raise productivity nor enhance exports. Numerous studies show that public investment in Pakistan is failing to crowd in private capital, generate jobs, or enhance competitiveness. No surprise, then, that economic growth has been on a steady downward slope this century.
Don't tax the economy to death
Maintaining the donor mantra that the 'tax-to-GDP ratio is low,' the IMF responds to our fiscal deficits by prescribing more and more taxes. When unrealistic revenue targets fall short, they roll out the usual remedy: 'further taxes,' 'additional taxes,' 'super taxes'—all piled on top of already over-taxed sectors in the infamous minibudget blitzes. The result? A regressive, volatile, and thoroughly anti-growth tax regime.
Pakistan's real problem is not just low revenue—it is the structure of revenue—complicated, intrusive, and volatile. The consequence is a skewed, unjust, and investment-suppressing system. As deficits ballooned alongside unchecked political largesse, public debt skyrocketed past the 60 percent of GDP ceiling set by the 2003 Fiscal Responsibility Act—an IMF-sponsored law. Today, over 50 percent of the federal budget is consumed by interest payments. Yet both federal and provincial governments continue spending with abandon. Just in FY2025, they added over 60 new government agencies. Apparently, austerity is for textbooks — not our political class.
A good budget
To shift the budget toward growth, we must reframe our fiscal strategy around three core objectives: investment facilitation, economic restructuring, and foreign exchange generation.
Our fiscal culture is rooted in control. Every economic activity is smothered in paperwork, redundant approvals, and bureaucratic misalignment. The budget must empower cities, universities, and private innovators—not just federal ministries.
Local governments have been 'in the pipeline' for decades. While this issue lies beyond the immediate scope of the budget, it is crucial that administrative decentralization and institutional autonomy be pursued with proper performance checks and accountability frameworks.
Perhaps the most urgent—and overdue—reform is the restructuring of the Planning Commission and the PSDP. The Haq/HAG model of brick-and-mortar development must evolve into a productivity-enhancing strategy.
Let us transform the PSDP into a competitive grants framework—empowering cities and knowledge institutions to innovate, tied to clear outcomes in research, urban regeneration, and enterprise development. Likewise, the Planning Commission should be converted into a genuine reform engine—steering away from bloated plans and abstract visions that no one reads, let alone implements.
And yes, this also means an end to discretionary funds and politically captive schemes.
Enough random taxation
The obsession with squeezing more out of the same tax base is strangling the economy. We need to broaden the base by simplifying, lowering, and stabilizing the tax structure—rather than repeatedly taxing the same goods and sectors into oblivion.
As we outlined in the Haque Tax Commission Report of 2024:
a) Simplify the tax code and reduce compliance burdens
b) Replace withholding and turnover taxes with a value-added tax (VAT) system, with automatic and credible refunds
c) Streamline documentation requirements for entering the tax system
d) Broaden the base through digitization and administrative ease
e) Most importantly, stop the frantic revenue drives that inject volatility, erode confidence, and drive away both domestic and foreign investment
A good time to open the economy
The relentless thirst for revenue has turned tariffs into a catch-all crutch—even exports now suffer because import duties are raising the cost of globally integrated inputs. Worse still, policy remains trapped in an outdated import-substitution mindset that rewards rent-seeking rather than export excellence.
It is time for a bold pivot: abandon import substitution and stop using tariffs as a revenue crutch. Elementary economics teaches that tariffs are used to prevent a needed exchange rate adjustment. Tariffs can never be a competitive strategy. If we are serious about export-led growth—not just sloganeering—we must let the rupee find its true value, open the economy, and dismantle protectionist walls.
Make the budget a living, transparent document
For two decades, we have had a grand-sounding World Bank project—PIFRA ('Project to Improve Financial Reporting and Auditing')—with nothing to show. We still lack basic budget transparency. Follow the rest of the world and now adopt accrual-based budgeting across Pakistan.
Here is a modest proposal for the finance minister: Make PIFRA live for public access this year. Put real-time dashboards online so citizens can trace every rupee spent.
Growth is the only way out
Our fiscal burden continues to grow as economic growth slows. The only way to break free from perpetual debt, IMF bailouts, and creeping default is through a sustained acceleration of private sector-led growth.
This must be the cornerstone of budget policy: raise private investment from today's pitiful 8–9 percent of GDP to over 20 percent in five years.
Deregulate. Open up. Simplify taxes and documentation. Build a performance-oriented public sector that enables growth—not one that chases after taxes with a club and spends the money on useless projects, bloated government, and patronage.
Copyright Business Recorder, 2025
