For years, Pakistan’s economic debate has revolved around one dominant idea: that the country’s financial troubles are mainly due to weak tax collection. However, recent data and analysis challenge this long-held belief. The Pakistan fiscal crisis is increasingly being recognised not as a revenue problem alone, but as a deep-rooted expenditure crisis driven by unchecked government spending and rising debt.
It is important to understand that the Pakistan fiscal crisis cannot be solved simply by raising taxes. While tax reforms are necessary, they have failed to deliver stability because government expenditure has grown far faster than national income and revenue.
Tax Growth Has Not Solved the Problem
Between FY15 and FY25, Pakistan’s tax revenue grew by over 300%, rising from Rs 2.91 trillion to nearly Rs 11.7 trillion. This sharp increase did not come from broadening the tax base but through repeated tax hikes, withdrawal of exemptions, and heavier pressure on already documented sectors.
Despite this massive growth in tax receipts, the Pakistan fiscal crisis has worsened. Why? Because government borrowing and spending have expanded even more aggressively. During the same period, public debt surged by 365%, jumping from Rs 17.3 trillion to over Rs 80 trillion. This imbalance shows that higher taxes have merely acted as a temporary patch rather than a permanent solution.
Debt Growing Faster Than Revenue
One of the most alarming aspects of the Pakistan fiscal crisis is the relationship between taxes and borrowing. For every additional rupee collected in taxes over the past decade, the government borrowed more than seven rupees. In absolute numbers, tax revenue increased by about Rs 8.8 trillion, while total debt ballooned by over Rs 63 trillion.
This pattern highlights a structural flaw in fiscal management. Instead of using higher revenues to reduce borrowing, the government continued to expand spending, forcing it to rely even more on debt. As a result, debt servicing has now become the fastest-growing expenditure item in the budget.
Debt Servicing Crowding Out Development
Debt itself is not always harmful. If used wisely, borrowing can support infrastructure, education, healthcare, and productivity-enhancing investments. Unfortunately, that has not been the case in Pakistan.
A large portion of new borrowing is now used simply to pay interest on old loans. This has left little room for development spending. As debt servicing costs rise, funds for education, health, and infrastructure are squeezed, further weakening economic growth and reinforcing the Pakistan fiscal crisis.
Over the past three years, domestic debt servicing alone has emerged as the single largest driver of expenditure growth, crowding out productive investment that could have helped reduce reliance on borrowing in the first place.
Structural Causes of Excessive Spending
The Pakistan fiscal crisis is also rooted in long-standing governance and structural issues. Government departments frequently exceed their allocated budgets with little accountability. Civil administration remains overstaffed and inefficient, while pension liabilities continue to expand rapidly.
Moreover, despite the 18th Amendment, several ministries that should have been devolved to the provinces still operate at the federal level. This duplication increases costs and undermines efficiency. Repeated austerity announcements have failed because they lack political commitment and meaningful enforcement.
Why Higher Taxes Alone Are Dangerous
Continuing to rely on higher taxes without cutting wasteful spending carries serious risks. Excessive taxation on a narrow base discourages formalisation, weakens export competitiveness, and deters both local and foreign investment.
In fact, persistent tax hikes may worsen the Pakistan fiscal crisis by shrinking the formal economy and pushing businesses into informality. Without expenditure reform, even the best tax policies will struggle to deliver sustainable results.
The Case for Spending Discipline
To address the Pakistan fiscal crisis, policymakers must confront the uncomfortable truth: spending reform is unavoidable. This means reducing unnecessary government expenditure, streamlining the civil service, reforming pension systems, and enforcing strict budget discipline.
Borrowing must be brought down sharply, and whatever borrowing remains should be directed toward growth-enhancing sectors rather than consumption or debt servicing. Without these changes, the cycle of borrowing, rising debt, and fiscal stress will continue indefinitely.
Breaking free from the Pakistan fiscal crisis requires a shift in mindset. Fiscal stability will not come from taxing the same citizens and businesses again and again. It will come from restructuring the state, cutting inefficiencies, and aligning spending with national priorities.
Meaningful austerity does not mean harming the poor or halting development. It means eliminating waste, improving governance, and ensuring that public money delivers real economic returns. Only then can Pakistan move toward long-term fiscal stability and sustainable growth.
The Pakistan fiscal crisis is fundamentally an expenditure crisis. Until government spending is brought under control, higher taxes alone will continue to fail and the debt burden will keep growing.
