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A Review on Fiscal and Debt Policies in Pakistan

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  • Karim Khan

    (Pakistan Institute of Development Economics)

Abstract

Pakistan has been pursuing an active albeit expansionary fiscal policy since 1970s. In the mid-1970s to early-1980s, such policy choice was manifested in externally financed development spending, primarily in the form of investment in public enterprises. Despite excessive deficit financing, Pakistan`s economic performance never took off; rather, it remained on a path of truncated growth which, in turn, created structural hurdles like low productivity, poor investment climate, and higher unemployment. Likewise, deficit financing has been threatening the sustainability of fiscal framework as excessive public spending is not accompanied by corresponding enhances in domestic revenues. Consequently, these policies have caused persistence in fiscal deficit and the accumulation of public debt over time. These woes are added further by persistent deficit in external accounts and, the resultant depreciation of Pakistani Rupee, which has havocked the cost of debt-servicing over the same period. Given the history of incessant macroeconomic imbalances; currently, Pakistani economy has been trapped into a vicious circle of stagflation and low growth prospects amid unfunded losses of the State Owned Enterprises (SOEs), government guarantees to the Independent Power Producers (IPPs), unsustainable debt and huge cost of debt-servicing, sky-rocketing prices of the essential items, frequent though unsuccessful bail-outs of the IMF, low credit worthiness and negligible level of investment among others. This review is focusing on a detailed analysis of Pakistan`s fiscal and debt policies, with a view to provide a framework for resolving the structural economic woes that the country has currently been faced with.

Suggested Citation

  • Karim Khan, 2025. "A Review on Fiscal and Debt Policies in Pakistan," PIDE-Working Papers 2025:2, Pakistan Institute of Development Economics.
    • Handle: RePEc:pid:wpaper:2025:2
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    References listed on IDEAS

    as
    1. Mahmood Khalid & Wasim Shahid Malik & Wasim Abdul Sattar, 2007. "The Fiscal Reaction Function and the Transmission Mechanism for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 435-447.
    2. Mehak Ejaz & Kalim Hyder, 2019. "A Fan Chart Approach to Debt Sustainability in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 24(2), pages 1-23, July-Dec.
    3. Muhammad Ismail & Fazal Husain, 2012. "Fiscal Discretion and Its Impact on Pakistan Economy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 339-364.
    4. Naeem Akram, 2011. "Impact of Public Debt on the Economic Growth of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(4), pages 599-615.
    5. Mansoor, Sadia & Baig, Aqeel & Lal, Irfan, 2020. "Can Pakistan Raise More External Debt? A Fiscal Reaction Approach," MPRA Paper 106868, University Library of Munich, Germany.
    6. Abdul Jalil, 2020. "Debt Sustainability: Economic Growth is the Panacea," PIDE Knowledge Brief 2020:19, Pakistan Institute of Development Economics.
    7. Muhsin Ali & Karim Khan, 2020. "Volatility in Discretionary Public Spending and Economic Growth: A Cross Country Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 45-68.
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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