In an era where Pakistan’s economy teeters under the weight of IMF conditions, soaring debt, and stagnant growth, the government’s repeated assertions of fiscal discipline ring increasingly hollow.
Recent data from the Ministry of Finance exposes a troubling paradox: federal civil administration and pension expenditures have surged unabated over the past five years, defying austerity drives that typically target pro-poor subsidies, development projects, and vulnerable sectors. The July-September quarter of FY26 saw a 13 percent jump in government running costs to Rs161.2 billion, even as rightsizing initiatives eliminated over 54,000 vacant posts—projected to yield Rs56 billion in annual savings. This escalation, coupled with a 125 percent spike in legacy pension payouts since Q1 FY22, reveals not transient blips but profound structural rigidities. As debt servicing consumes nearly half of revenues and development spending faces routine deferrals, these unchecked overheads threaten to perpetuate deficits, erode credibility with lenders, and stifle the transformative growth Pakistan desperately needs.
The trajectory of these expenditures paints a damning picture of institutional inertia. Civil administrative costs have ballooned nearly 80 percent from Rs89.5 billion in Q1 FY22, shrugging off mergers of ministries, departmental rationalizations, and cumulative job cuts exceeding 200,000 positions in recent years. Finance Minister Muhammad Aurangzeb has positioned these measures as cornerstones of efficiency, yet the persistent upward march—amid a sixfold increase in subsidy disbursements to Rs120 billion in the same quarter—suggests superficial reforms failing against entrenched bloat. Pensions, ranking as the fourth-largest budgetary line after debt, defense, and development, exemplify delayed reckoning. The 2025 reforms, transitioning new civilian entrants to contributory schemes (10 percent employee, 20 percent government contributions from mid-2024, extended to armed forces in 2025), promise long-term sustainability but leave a massive legacy burden intact. A 7 percent pension increase effective July 2025 further inflates obligations, ensuring that relief remains generational rather than immediate.
This relentless growth occurs against a backdrop of acute financial pressure. With public debt exceeding Rs82 trillion and external obligations demanding rollovers, the center’s fiscal space shrinks annually. Development allocations, vital for infrastructure and human capital, are habitually slashed mid-year—often by 20-30 percent—to accommodate overruns, shaving potential GDP growth by 0.5 percentage points in FY25 alone, according to independent assessments. Pro-poor subsidies, from energy relief to social protection, bear the brunt of “austerity,” while core administrative and pension lines expand unchecked. This selective restraint not only exacerbates inequality—42 percent poverty and 40 percent child stunting persist—but also undermines the IMF’s Extended Fund Facility mandates for prudent expenditure management.
Successive administrations have deflected blame onto the 7th National Finance Commission (NFC) Award of 2011, which elevated provincial shares in the divisible pool to 57.5 percent. A recent Planning Ministry analysis reinforces this grievance, asserting that federal deficits averaged 7 percent of GDP post-Award, compared to 4 percent previously, as diminished central resources strained debt servicing, defense, and national obligations. To offset this, Islamabad has imposed hefty petroleum and gas development levies—generating billions annually—while contemplating clawbacks of devolved funds or shifting expenditure loads, such as health and education, back to provinces.
This scapegoating, however, masks self-inflicted vulnerabilities. Provinces have adeptly utilized enhanced transfers post-18th Amendment, achieving surpluses and advancements in devolved domains like primary healthcare and schooling. The federal deficit’s persistence owes more to internal failings: reluctance to downsize a bloated bureaucracy, retention of duplicative ministries despite constitutional devolution, and pension systems bloated by early retirements and unchecked indexation. Tax policy distortions—exemptions costing 4.61 percent of GDP shielding real estate barons, agricultural elites, and retailers—compound the issue, keeping the tax-to-GDP ratio stagnant at 10.3 percent while compliant salaried classes and formal firms shoulder escalating burdens.
A sustainable resolution demands a paradigm shift beyond symbolic gestures. Rightsizing must penetrate active redundancies, not merely vacant slots: merge or abolish 10-15 overlapping ministries, streamline a civil service hierarchy notorious for layers and perks. Pension legacies require bolder interventions—phased benefit reductions for high earners, mandatory retirement age enforcement, and accelerated contributory migration to curb annual 20-25 percent growth. State-owned enterprise privatization, long promised yet stalled, could halt hemorrhages exceeding Rs500 billion yearly, redirecting savings to productive avenues.
Tax reforms are equally imperative: digitize enforcement to capture Rs2-3 trillion from the informal sector, phase out exemptions equitably, and target a tax-to-GDP ascent to 18-20 percent through broadened nets rather than regressive hikes. Provincial cooperation, not confrontation, could unlock synergies—shared revenue from urban immovable property taxes or agricultural income levies—while upholding NFC equity.
Clinging to NFC revision fantasies or piecemeal cuts offers illusory escape. As global borrowing costs rise and domestic investment languishes at 13 percent of GDP, structural bloat risks perpetual crises: higher taxes on the squeezed middle, deferred development starving growth, and eroded lender trust inviting harsher IMF terms. The 13 percent Q1 surge isn’t anomaly—it’s symptom of a system prioritizing preservation over progress.
Pakistan stands at a fiscal inflection: confront institutional excesses with unflinching resolve, or perpetuate a cycle where austerity burdens the vulnerable while overheads thrive. With a youthful populace demanding jobs and services, the choice is existential—reform the core, or watch deficits devour the future. True discipline isn’t selective sacrifice; it’s systemic renewal, ensuring every rupee serves the nation’s ascent, not its apparatus.