Why budget-making in Pakistan is a struggle to plug holes

Pakistan’s 2025-2026 delayed budget presentation now likely on June 10 underscores deep economic uncertainty. Dictated by the IMF and living from one tranche to the next, Pakistan has the distinction of being IMF’s best customer – 24 times since 1958, and most notably without significant reforms to improve public governance.

According to the Express Tribune, Pakistan with major contraction in agriculture - historically a lifeline for the economy, has missed its growth targets for the fiscal year. Production of important crops has declined by 13.49 percent, compelling the country to increase grain imports. The Ministry of Finance estimates that wheat import alone will cost over $1 billion — a crippling figure for an import-dependent, dollar-strapped economy. This is the state of the land once considered a ‘granary’ of the sub-continent.

Pakistan’s exports have remained stagnant between $25 to $30 billion during the last decade, causing structural imbalance making the economy reliant on the IMF.

Pakistan’s foreign exchange reserves, therefore, remain fragile, propped up not by trade surpluses or investment inflows, but by buying from the local market - a record over $9 billion in the past year to remain afloat, disclosed Jameel Ahmed, the State Bank Governor, and the goodwill of friendly nations like UAE, China and Saudi Arabia.

Pakistan’s perpetual economic crisis is caused by a convergence of governance failure, tax system based on evasion and political expediency.

Reliance on foreign loans to finance deficits has ballooned into a vicious cycle and debt servicing now consumes the largest chunk of the federal budget, leaving little for development spending. The balance of payments remains in perpetual deficit, exacerbated by import-heavy consumption and a weak export base.

The tax net remains unjustifiably narrow, largely sparing influential interest groups such as land owning and the trading classes. The Federal Board of Revenue (FBR) could only collect 0.001 percent of tax target from the traders – missing by an unbelievable 99.99 percent.

Meanwhile, the salaried class and ordinary consumers are squeezed dry through direct and indirect taxation. The tax collection shortfall is a staggering Rs1.03 billion in the first 11 months of the fiscal year. Productivity in both agriculture and industry is abysmal due to outdated technology, poor education, and lack of investment. The country is unable to compete internationally, making exports uncompetitive and imports indispensable. Even Vietnam - a war battered country in 1975, exported goods worth $405 billion in 2024 while Pakistan languishes at about $32 billion only.

Policy continuity — a prerequisite for investor confidence routinely suffers due to political instability, political exigencies and elite power struggles. The civil service, once a pillar of governance, is now hollowed out by politicisation and corruption.

Infrastructure bottlenecks, particularly in energy and transport, stifle growth. Electricity theft in Pakistan at about 20 percent costs nearly $1 billion loss annually, raising costs for domestic and industrial consumers.

Social sector spending remains paltry. Education and healthcare are criminally underfunded, particularly in provinces like Balochistan and interior Sindh. This uneven development feeds regional resentments and hampers national cohesion. The failure to invest in human capital has led to generations of poorly trained workers unable to meet the demands of a modern economy.

Perhaps the most corrosive element in the economic equation is corruption, which has metastasised. From inflated procurement contracts to political advertising sprees in Punjab particularly, aimed at glorifying the chief minister, public money is routinely wasted. The result: a bloated, inefficient state apparatus with no sense of public duty.

While the road to recovery is steep, it is not impassable. To break free from its cycle of economic dysfunction the government must demonstrate resolve and target the untaxed elite especially the vast informal trading sector.

To attract FDIs Pakistan must restore macroeconomic stability, depoliticise institutions, ensure legal protection for investors, and create a transparent, rules-based investment climate. Without genuine reforms, FDI will remain elusive — regardless of geographic or strategic potential. Don’t be carried away with MOU sops.

Pakistan’s economy is not a victim of fate — it is a casualty of poor choices, captured institutions, and a refusal to reform. Without bold, honest, and inclusive policy changes, the country will continue to lurch from crisis to crisis, its sovereignty mortgaged to foreign lenders and its people paying the price.

The IMF can only provide temporary lifelines. The real rescue must come from within — through better governance, legal enforcement, accountability, and a shift in national priorities from patronage to people, from security to society. The question is no longer what needs to be done, but whether there is any political will to do it.

Sajjad Ashraf served as an adjunct professor at the Lee Kuan Yew School of Public Policy, National University of Singapore from 2009 to 2017. He was a member of the Pakistan Foreign Service from 1973 to 2008 and served as an ambassador to several countries.