Pakistan’s mounting public debt has once again highlighted one of the country’s most persistent economic problems: the state continues to spend far more than it can comfortably afford. Federal government debt had surged to Rs83.6 trillion by the end of June, an increase of Rs5.8 trillion, or 7.3 per cent, in a single fiscal year. Even more concerning is the longer-term trend. According to the State Bank of Pakistan’s latest debt bulletin, the debt stock has increased by roughly 75 per cent over four years, adding Rs35.8 trillion to the burden.
Debt, in itself, is not necessarily a sign of economic mismanagement. Governments routinely borrow to finance development, respond to crises and invest in projects that can generate economic returns over time. What matters is whether borrowing remains sustainable and whether the money is being used productively. Pakistan’s problem is that an increasingly large share of government resources is being consumed by debt servicing rather than investment in the country’s future.
Almost half of the federal budget is effectively tied up in debt servicing, leaving considerably less fiscal space for infrastructure, healthcare, education and other essential public services. More than Rs8 trillion has been earmarked for interest payments alone in the current fiscal year. Every rupee spent servicing old debt is a rupee that cannot easily be spent on improving schools, expanding hospitals, upgrading water systems or building infrastructure that could strengthen long-term economic growth.
This is the real danger posed by Pakistan’s debt burden. The problem is not simply the size of the number on a balance sheet. It is the opportunity cost. When the government has to devote an enormous portion of its annual resources to servicing debt, it becomes increasingly difficult to make the investments needed to raise productivity, create jobs and expand the economy. A country can become trapped in a cycle in which it borrows to meet existing obligations, leaving little money available to address the structural weaknesses that caused the borrowing in the first place.
Government supporters have pointed to an improvement in Pakistan’s debt-to-GDP ratio in recent years as evidence that the situation is becoming more manageable. That is a relevant indicator, but it should not obscure the underlying problem. A lower ratio does not mean that the absolute debt burden has ceased to matter, particularly when debt servicing is consuming such a large share of government revenues.
There is also a tendency to present the fact that much of the recent borrowing has been domestic as a silver lining. It is true that domestic borrowing reduces some of the immediate foreign-exchange risks associated with external debt. But borrowing domestically does not make the burden disappear. The ultimate liability still falls on the state, and therefore on taxpayers. Whether debt is owed to domestic banks and investors or foreign creditors, future governments and citizens will have to repay it.
Pakistan also needs to take its own fiscal rules more seriously. The Fiscal Responsibility and Debt Limitation Act was intended to impose discipline on government borrowing and establish a path towards reducing the debt burden. Yet successive governments have struggled to demonstrate the consistency and political will required to meet those objectives. Laws designed to constrain fiscal excesses cannot become mere statements of intent that are ignored whenever circumstances become politically inconvenient.
The deeper problem is that fiscal discipline has too often been treated as something demanded by the International Monetary Fund rather than something Pakistan needs for its own survival. IMF programmes may impose targets for deficits, taxation, subsidies and borrowing, but responsible fiscal management should not begin when an IMF mission arrives and end when a programme expires. A country that repeatedly finds itself returning to external lenders is clearly dealing with structural problems that temporary financing cannot solve.
The government must therefore look beyond short-term deficit reduction and address the reasons why the state continues to accumulate debt. Public expenditure needs to be rationalised, particularly where spending produces little economic or social return. Loss-making state-owned enterprises cannot continue to consume scarce public resources indefinitely. Energy-sector inefficiencies, untargeted subsidies and unnecessary administrative expenditure also need to be addressed with greater seriousness.
Revenue mobilisation is equally important. Pakistan cannot achieve sustainable fiscal stability without broadening the tax base and ensuring that those with the ability to pay contribute their fair share. Repeatedly increasing taxes on the already documented and compliant segments of the economy is neither equitable nor sustainable. The informal economy, under-taxed sectors and individuals who remain outside the effective tax net must be brought into the system through better documentation, enforcement and institutional reform.
Provincial finances also require attention. Fiscal responsibility cannot be limited to the federal government when provinces control substantial public expenditure and revenue responsibilities. A sustainable national fiscal framework requires federal and provincial governments to work within a coherent strategy rather than shifting financial pressures between each other.
Ultimately, Pakistan’s debt problem is a symptom of a broader failure to live within its means. Borrowing can be justified when it finances productive investment that expands future revenues and economic capacity. Borrowing simply to cover recurring expenditure, refinance old obligations or postpone difficult decisions only transfers today’s problems to tomorrow’s taxpayers.
The country cannot afford that approach indefinitely. Economic self-reliance will remain an illusion as long as a large portion of national resources is committed to servicing accumulated debt. Pakistan needs a credible, long-term fiscal strategy that survives changes in governments and political cycles. That means controlling expenditure, expanding the tax base, improving public-sector efficiency, enforcing fiscal responsibility at every level of government and directing borrowing towards investments that generate genuine economic returns.
Debt may be manageable when an economy is growing rapidly and government revenues are rising. But when debt grows faster than the country’s capacity to service it, the burden eventually constrains development itself. Pakistan must therefore treat fiscal discipline not as an IMF requirement, but as a national priority. The longer meaningful reform is postponed, the more expensive it will become for the generations that will ultimately have to pay the bill.
Shafaqna Pakistan
pakistan.shafaqna.com
Note: Shafaqna do not endorse the views expressed in the article
