Rethinking Chronic Fiscal Debt

Rethinking Fiscal Reform in Pakistan

Collaborating Partners:

IGC, CDPR, CNM Economics Department

At the core of Pakistan’s fiscal dysfunction lies a profound political economy challenge, as discussed in the recent discussion hosted by the Mahbub Ul Haq Research Centre, featuring Dr. Ijaz Nabi, Dr. Anjum Nasim, and Dr. Ishrat Husain. Organised in collaboration with the Consortium for Development Policy Research (CDPR), the International Growth Centre (IGC), and the CNM Economics Department, the discussion examined the structural roots of Pakistan’s persistent fiscal deficits. The speakers highlighted the growing disconnect between the financial sector and the real economy, noting that banks have increasingly channelled funds into government sovereign debt rather than supporting productive investment. Consequently, debt servicing consumes a substantial portion of government revenues, severely constraining development expenditure.

Dr. Anjum Nasim contended that the principal issue is not the size of the government, but the poor quality of public spending. Pakistan's underinvestment in human capital, coupled with a disproportionate emphasis on military expenditure, was contrasted with Bangladesh’s success in leveraging community-driven health and education initiatives. Furthermore, the devolution of fiscal authority to the provinces has produced inefficiencies, as weak institutional capacity and inflexible subsidy regimes have hampered effective service delivery. The importance of empowering local governments, enhancing provincial expenditure efficiency, and adopting technology-driven oversight mechanisms was repeatedly emphasised. Drawing on case studies from Punjab included in the book, Dr. Nabi illustrated how targeted reforms can significantly improve service delivery and skills development.

The book under review, Pakistan: How to Live Within Means, presents a six-part reform agenda advocating systemic restructuring, community engagement, and a strategic pivot towards investment-led growth. During the Q&A session, participants reflected on the role of remittances, the risk of ‘Dutch disease’, and the need for prioritising human capital development. The discussion concluded that although Pakistan’s fiscal challenges are formidable, comprehensive and targeted reforms offer a credible path towards sustainable economic transformation.

 

 

Date:

Mahbub ul Haq Research Centre at LUMS

Postal Address

LUMS

Sector U, DHA

Lahore Cantt, 54792, Pakistan

Office Hours

Mon. to Fri., 8:30 a.m. to 5:00 p.m.

Contact Information

T: +92-42-3560-8000

X: 8182, 4452

 

E: mhrc@lums.edu.pk