Dire fiscal imbalance has emerged over 15 years, with the current-to-development expenditure ratio deteriorating dramatically from 2.2:1 in fiscal year 2010 to 10.3:1 by fiscal year 2025, indicating a severe consumption bias that threatens long-term economic sustainability.
This has been revealed in a report “Decoding Pakistan’s Budget Dynamics”, released by the Economic Policy and Business Development (EPBD). The report authored by Muhammad Mubasal noted crushing debt burden has become the dominant fiscal constraint, with debt servicing growing by 1,411% over the period (19.8% CAGR), significantly outpacing GDP growth (15.3% CAGR) and consuming 56.8% of current expenditure by fiscal year 2025.
Critical development underfunding is evident as development expenditure grew at merely 5.4% annually compared to current expenditure’s 16.7%, with its share of the budget contracting from 31% to just 8.9%. Persistent power sector challenges remain unresolved despite repeated reform attempts, with power subsidies growing by 1,676% (21.3% CAGR), reflecting structural issues in the energy sector. Dramatic social safety net expansion has occurred, with social protection expenditures increasing by an extraordinary 15,489% (38.7% CAGR), transforming from a peripheral concern to a central budget priority. Concerning human capital underinvestment continues as health and education witnessed the lowest growth rates among major sectors (10.3% and 8.3% CAGR respectively), significantly below overall budget growth (14.7% CAGR).
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Fundamental fiscal federalism shift has occurred following the 7th NFC Award, with provincial share of resources increasing by 1,036% (17.7% CAGR) and Provincial PSDP growing at twice the rate of Federal PSDP. Stagnant revenue mobilization persists despite tax revenues growing by 768% (15.5% CAGR), as the tax-to-GDP ratio remained largely unchanged around 10-11%. Dangerous reliance on central bank financing has developed with SBP profits increasing by 1,567% (20.7% CAGR), indicating dependence on monetary financing rather than sustainable tax measures.
Accelerating fiscal risk is evident as bank borrowing increased by 3,471% (28.4% CAGR), while external resources grew by just 30.6% (1.8% CAGR), indicating a dramatic shift toward potentially unsustainable domestic financing.
Information Technology and Telecom budget allocations grew from Rs 1.1 billion to Rs 28.9 billion, with their Public Sector Development Programm (PSDP) share increasing from 0.2 percent to 2.1 percent, indicating strategic prioritization of digital transformation. IT & Telecom saw its share increase, reflecting the growing importance of the digital economy.
Emerging policy priorities in climate change and digital economy show substantial growth, with climate financing increasing from negligible amounts to Rs 260 billion by fiscal year 2025.
The 15-year period from fiscal year 2010 to fiscal year 2025 represents a critical era in Pakistan’s fiscal management, marked by significant economic challenges, policy shifts, and structural transformations. This budget comparison tracks the evolution of Pakistan’s public finances during this period, highlighting key trends in revenue mobilization, expenditure priorities, debt management, and development focus. The analysis reveals a complex fiscal landscape characterized by persistent structural challenges alongside emerging priority areas.
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Throughout this period, Pakistan’s budget framework has evolved in response to changing economic realities, development imperatives, and governance priorities. The implementation of the 7th NFC Award in 2010 fundamentally altered federal-provincial fiscal relations, while successive economic stabilization programs have shaped expenditure patterns and fiscal space. A notable feature of this 15-year journey has been the increasing burden of debt servicing, which has grown to consume a significant portion of current expenditure.
Simultaneously, the budget shows a gradual shift in development priorities, with emerging focus areas like climate change, digital economy, and social protection gaining prominence, while the overall development-to-current expenditure ratio has deteriorated. The revenue picture reflects ongoing challenges in tax mobilization, with modest improvements in the tax-to-GDP ratio through FY20 followed by a decline in FY25, despite numerous reform efforts. Non-tax revenues, particularly central bank profits, have emerged as increasingly important financing sources. This comparative analysis provides a data-driven foundation for understanding Pakistan’s fiscal trajectory over a period of significant economic and governance transition. By examining trends across consistent parameters, it offers insights into the sustainability of current fiscal approaches and highlights areas requiring structural reforms to establish a more resilient fiscal framework