Addressing Pakistan’s Chronic Fiscal Deficit: Implications and Solutions for 2023
Pakistan’s chronic fiscal deficit recorded at 7.8 per cent of the GDP in 2023 demands immediate attention because of its significant implications for debt management, inflation, external sector, and low productivity. This pressing issue requires focused efforts on both government expenditure and revenue collection to address the deficit effectively.
The budgeted expenditure for FY2025 reveals that a significant portion of expenditures are allocated to pre-committed areas such as debt servicing, salaries, pensions, transfers to provinces, and subsidies. With limited funds left for development expenditure after a substantial increase in defense spending, controlling expenditures in other areas is crucial. This includes reducing the government footprint, ending blanket subsidies, and scrutinizing development expenditures.
The 18th Amendment has led to increased federal spending on devolved areas due to spending overlaps. Closing unnecessary ministries and departments can help control the fiscal deficit and improve efficiency in government affairs. Privatizing loss-making state-owned enterprises (SOEs) and restructuring strategically important ones can also help reduce losses and improve efficiency.
The existing system of subsidies in Pakistan has failed to reduce poverty effectively. A review to improve the efficiency of subsidies and target them towards marginalized segments can help reduce government expenditures and foster transparency. Reforms in pension provision and development spending are also necessary to address the fiscal deficit.
Monetizing perks of public-sector employees, ending the practice of distributing subsidized plots, and auctioning state real estate can help reduce public expenditure and increase economic activity. Making informed decisions in the budget will set the course for future prosperity in Pakistan.
As a senior research officer at the Overseas Investors Chamber of Commerce and Industry (OICCI), the writer emphasizes the importance of addressing Pakistan’s fiscal deficit for sustainable economic growth. The views expressed in the blog post are the writer’s own and do not represent the views of any institution.
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