Arshad Mahmood Awan
The Finance Division has released consolidated fiscal data for the first half of fiscal year 2025-26, covering federal and provincial operations from July through December. The numbers tell a story of mounting pressures, questionable statistics, and structural weaknesses that continue to haunt Pakistan’s public finances.
Current expenditure jumped dramatically in the second quarter. From four trillion rupees in the first three months, it climbed to five and a half trillion rupees by December’s end. This surge cannot be ignored. The primary culprit is mark-up payments, the cost of servicing Pakistan’s accumulated debt. Interest payments nearly tripled, rising from one point three eight trillion rupees in the first quarter to three point five six trillion rupees for the half year.
This explosion in debt servicing costs occurred even as domestic bank borrowing showed negative numbers. Banks actually received back two point one nine two trillion rupees in the first quarter, while total repayments reached three hundred twenty-five point four billion rupees by December. Non-bank borrowing, largely from savings centers, moved from positive one hundred twelve billion rupees in the opening quarter to negative two hundred fifty point four billion rupees by the half-year mark.
What does this negativity signal? People are withdrawing their savings rather than adding to them. The high cost of living has squeezed households to the breaking point. Wages have remained essentially stagnant for five years while inflation has ravaged purchasing power. Citizens are dipping into whatever reserves they accumulated in better times. The private sector, struggling under its own burdens, has proven unable or unwilling to raise compensation. This presents a troubling picture of an economy where ordinary people bear the brunt while solutions remain elusive.
Defence spending doubled from four hundred forty-seven billion rupees to one trillion rupees over the six-month period. This increase makes sense given operational realities. Terror attacks have increased, requiring heightened military readiness and expanded operations. Security cannot be compromised, but the fiscal burden grows heavier.
The primary balance, which excludes borrowing costs, improved from three point four nine seven trillion rupees to four point one zero six trillion rupees. This sounds positive until you examine the overall budget balance. It collapsed from two point one one nine trillion rupees in the first quarter to a mere five hundred forty-one point eight eight two billion rupees by December’s end. The deficit as a percentage of GDP fell from one point six percent to zero point four percent, but this calculation rests on a budgeted GDP of one hundred twenty-nine point five six seven trillion rupees.
Here is where things get murky. The IMF is currently conducting technical assistance to review Pakistan’s GDP estimates. Their preliminary findings are damning. Important shortcomings exist in source data for sectors representing roughly one-third of Pakistan’s GDP. One-third. Let that sink in. We are making critical fiscal decisions based on national income figures that may be fundamentally flawed for a massive chunk of the economy.
Development expenditure and net lending rose from two hundred ninety-five billion rupees in the first quarter to nine hundred sixty-three point eight six nine billion rupees by December. This appears impressive at first glance. But appearances deceive. The Ministry of Planning’s own website reveals the reality. Authorization for development spending was three hundred fifty-six billion rupees for the half year. Actual expenditure was only two hundred ten billion rupees. That represents a forty percent shortfall between what was approved and what actually went out the door. The rise in the fiscal accounts reflects net lending, not genuine development disbursements that create infrastructure and economic capacity.
Federal Board of Revenue collections doubled from two point nine trillion rupees to six point one trillion rupees over the six months. This represents a severely contractionary fiscal policy. Higher taxes extract more money from an already struggling economy, suppressing growth and dampening GDP. Yet current expenditure increased even faster than revenue collection. This strengthens the argument that Pakistan must focus on cutting current expenditure rather than perpetually raising taxes. You cannot tax your way out of a spending problem, especially when the spending continues to accelerate.
The petroleum levy provides a stark example of how citizens are being squeezed. Collections jumped from three hundred seventy-one point six billion rupees to eight hundred twenty-two point nine two seven billion rupees. Every time someone fills their vehicle, they pay this levy. It goes straight into government coffers without passing through the divisible pool that provinces share. This massive extraction from the public explains why savings at National Savings Centers declined. People are choosing between fuel and saving for the future. Fuel wins because you need it today.
Provincial tax collections increased from two hundred sixty-eight point nine billion rupees to five hundred sixty-eight point five billion rupees. But examine the composition. Sales tax on services accounted for the bulk of this rise, climbing from one hundred forty-six point seven billion rupees to three hundred twenty-nine billion rupees. The IMF wanted provinces to develop capacity for self-reliance through agricultural income tax on wealthy landlords and real estate taxes. These remain largely untapped. Provinces continue taking the easy route, taxing services rather than confronting powerful landed interests or tackling property speculation.
Federal transfers to provinces doubled from one point seven seven trillion rupees to three point six trillion rupees by December. This fueled an increase in provincial spending. The dependency continues. Provinces receive ever-larger transfers rather than building their own sustainable revenue bases through politically difficult reforms.
Now we arrive at the statistical discrepancy, a polite term for numbers that simply do not add up. The federal discrepancy doubled from negative two hundred sixty-one billion rupees to negative four hundred thirteen billion rupees. Provincial discrepancy improved slightly, declining from negative three hundred fifty-four point seven billion rupees to negative three hundred forty-one point eight billion rupees. These are not small rounding errors. These are massive holes in the accounting.
The IMF has also identified a minimum eleven billion dollar statistical discrepancy in Pakistan’s import data. Eleven billion dollars of imports that cannot be properly accounted for or reconciled. This demands comprehensive review. How can economic policy be formulated when the underlying data is this unreliable?
These discrepancies must be minimized in the third and fourth quarters of the current fiscal year. But minimizing discrepancies requires institutional capacity, political will, and technical expertise. It requires admitting that Pakistan’s economic statistics are fundamentally compromised. It requires investing in data collection systems and trained personnel. It requires breaking the comfortable habit of working with convenient fictions rather than uncomfortable truths.
The fiscal picture that emerges is troubling. Debt servicing costs consume an ever-larger share of revenue. Citizens withdraw savings to survive. Development spending lags far behind authorization. Tax collection rises but spending rises faster. Provinces avoid hard reforms. And throughout it all, statistical discrepancies suggest we may not even know the true state of affairs. Pakistan’s fiscal management requires honesty about these realities before solutions become possible.
