Zafar Iqbal
The persistent and rapid rise in federal civil administration and pension expenditures over the last five years continues to challenge the government’s claims of fiscal discipline. Despite repeated announcements of austerity measures, including the withdrawal of pro-poor subsidies, job cuts, and the ongoing overhaul of ministries and departments, government spending has surged, signaling that the problem is structural rather than temporary. This trend underscores that symbolic measures alone cannot rein in costs without addressing the deeper institutional inefficiencies embedded within the federal system.
Recent data from the Finance Ministry highlights that the cost of running the federal government increased by 13 percent in the July-September quarter of this year alone. This occurred even as thousands of civil service positions were abolished, a move projected to save Rs56 billion annually. However, these immediate measures have done little to offset the long-term burden of legacy pension obligations, which have increased by a staggering 125 percent over the last five years. The ongoing pension reforms, while necessary, are unlikely to yield immediate fiscal relief, suggesting that generations of structural challenges remain unresolved.
The relentless growth in administrative expenditure is particularly concerning against the backdrop of a severe financial crunch, escalating debt servicing obligations, and declining development spending. Civil administrative costs have spiked by 80 percent since the first quarter of FY22, highlighting a failure to tackle the underlying budgetary inefficiencies. Such costs place additional pressure on the government, limiting its ability to invest in critical sectors, address social needs, or respond effectively to macroeconomic shocks. The structural nature of these expenditures indicates that without fundamental reforms, fiscal stress is likely to persist, irrespective of short-term austerity measures.
For years, successive governments have attributed their fiscal stress to the seventh National Finance Commission (NFC) Award, arguing that higher provincial shares have constrained the federal government’s ability to meet debt, defense, and operational obligations. A recent Planning Ministry report reinforces this narrative, claiming that the federal deficit has averaged around 7 percent of GDP since the implementation of the Award in 2011, compared to 4 percent in preceding years. In response, Islamabad has imposed billions in development levies on petroleum products and gas, while simultaneously seeking to reclaim financial resources ceded to provinces or transfer major expenditure responsibilities to them.
While the NFC Award has indeed shifted resources toward the provinces, using it as a scapegoat obscures the deeper structural issues in federal finances. Pakistan’s fiscal challenges are rooted less in the revenue-sharing formula and more in the centre’s inability—or unwillingness—to reform its expenditure patterns. Recurrent federal spending continues to climb, and administrative inefficiencies, bloated bureaucracy, and legacy obligations remain largely unaddressed. Shifting blame to provinces will not resolve these structural weaknesses that drive federal deficits.
A comprehensive reform agenda is therefore essential. Right-sizing the federal bureaucracy is a critical first step. Ministries that have already been devolved to provinces continue to exist at the federal level, consuming valuable resources without adding proportional value. Streamlining administrative structures, closing redundant departments, and rationalizing service delivery can help contain wasteful spending. Similarly, fast-tracking the privatization of loss-making state-owned enterprises (SOEs) would reduce the financial drain on public finances and improve efficiency in sectors that remain under government control despite repeated underperformance.
Tax reforms also remain central to achieving fiscal stability. The federal government’s reliance on resource transfers from the divisible pool, coupled with efforts to impose development levies, reflects a broader failure to broaden the tax base or improve tax collection. Increasing the tax-to-GDP ratio to 18-20 percent is necessary to create a sustainable revenue stream capable of financing essential services, development projects, and debt obligations. Without serious reforms in taxation, the federal government will continue to rely on ad hoc measures that shift financial burdens to provinces or consumers, exacerbating economic inequities.
Pension reforms also warrant immediate attention. While recent initiatives aim to rationalize payouts, the legacy pension system continues to consume an outsized share of federal resources. Accelerating pension reform, ensuring actuarial sustainability, and tying benefits to realistic fiscal parameters are essential steps. Failure to address this structural liability will continue to hinder the government’s ability to allocate resources effectively, maintain fiscal balance, and meet long-term developmental priorities.
Moreover, the pattern of incremental austerity measures—such as withdrawing subsidies or eliminating select civil service posts—while politically expedient, has limited impact. Without addressing the root causes of expenditure growth, including institutional inefficiencies and structural obligations, the federal government risks a repeat cycle of fiscal stress. A strategic, multi-year approach that combines expenditure rationalization, structural reforms, and revenue enhancement is essential to restore credibility and fiscal stability.
The government must also recognize that fiscal discipline is not merely a matter of optics or temporary cuts. It requires a sustained commitment to institutional reform, transparency, and accountability in federal spending. This includes monitoring administrative performance, evaluating the cost-effectiveness of federal programs, and ensuring that resources are directed toward high-priority sectors with demonstrable impact. By embedding fiscal prudence into the operational culture of federal ministries and agencies, Pakistan can create a resilient framework capable of managing both recurrent obligations and development priorities.
Ultimately, attributing fiscal challenges solely to external factors such as the NFC Award is misleading. While revenue-sharing arrangements have altered the flow of resources, they do not explain the rapid rise in administrative and pension expenditures, or the persistent inefficiencies in federal operations. Sustainable fiscal stability requires a holistic approach that addresses structural weaknesses, modernizes governance, and ensures that expenditure growth is matched by commensurate productivity gains.
The path forward is clear: structural reforms, bureaucratic rationalization, pension rationalization, SOE privatization, and comprehensive tax reforms. Short-term austerity alone cannot solve systemic fiscal problems. Only through a coherent, targeted, and sustained reform agenda can the federal government regain control over its finances, reduce dependence on ad hoc revenue measures, and ensure fiscal discipline that supports long-term national development.
