In recent years, Pakistan’s fiscal deficit has been consistently higher than budget estimates by an average of 25 per cent, due to inadequate revenue projections, weak expenditure controls, and supplementary grants. These chronic mistakes have undermined the integrity of the federal budgeting process.
The technical assistance report 2024 highlights poor implementation and budget execution despite the enactment of the Public Financial Management Act in 2019. The Governance and Corruption Diagnostic Assessment (GCDA) 2025 has raised serious concerns about Pakistan’s public financial management system, highlighting persistent shortcomings in budget execution and fiscal transparency that erode fiscal discipline and trust in the budgetary process.
The budget preparation process in Pakistan is currently “bottom-up,” based on the demands of various ministries rather than strategic fiscal planning.
The lack of timely fiscal projections and expenditure caps has left medium to long-term fiscal goals at a considerable distance from annual budgets. This disconnect has made it more difficult to exercise expenditure discipline and to give discretionary reallocations within the fiscal year. Macro-fiscal functions in Pakistan lack coordination, as the Macro-Fiscal Policy Unit (MFPU) remains underdeveloped and unable to generate timely forecasts for budget preparation; it typically produces outdated forecasts in March, as the budget preparation process starts in January.
The top five ministries, including energy, defence, interior, cabinet, and national health, accounted for nearly 91 per cent of cumulative overspending, which rose sharply after FY20
Shortcomings in the commitment controls within Pakistan’s Financial Accounting & Budgeting System (FABS) are also exposed as expenditure processes are still executed manually and are not well integrated.
The federal government budget structure includes 40 ministries, 104 attached departments and agencies, 21 cabinet secretariat budget lines, and 30 miscellaneous expenditure budget lines. The cumulative budgetary deficit of federal ministries from 2015 to 2024 averaged at Rs210.22 billion. Most federal ministries recorded moderate budget deviations, while a small group drove major fiscal overruns.
The top five ministries, including energy, defence, interior, cabinet, and national health, accounted for nearly 91 per cent of cumulative overspending, which rose sharply after FY20. Over-spending on energy-sector circular debt, emergency health spending and security-related issues aggravated fiscal imbalances and boosted domestic borrowing.
The assessment also indicates that the number of subsidies paid increased sharply in the past few years. There is growing fiscal fragmentation in the structure as subsidy budget lines have expanded from 13 worth Rs664bn in FY23, to 37 worth Rs1.36 trillion in FY25, and grants and transfers from 56 worth Rs1.174tr in FY23 to 97 worth Rs1.77tr in FY25, showing a decline in the priority of budget lines and a rising fiscal burden.
The finance ministry shows a significant rise in average budgetary underspending from Rs37.8bn (2015-2019) to Rs402.6bn (2020-2024), indicating considerable inconsistencies in expenditure planning and execution. Likewise, the Power Division overspent its subsidy budget by Rs166.1bn, and the Petroleum Division by Rs82.7bn, on average over the last five years (2020-2024).
The report also highlighted the Benazir Income Support Programme (BISP) for its fast-growing budget. The actual expenditure of BISP has increased from Rs116bn in 2019 to Rs722bn in 2025, representing a growth of around 522pc since 2019. Under the Ministry of Poverty Alleviation and Social Safety, the BISP’s 2024 actual expenditure has now become the second-largest item in the budget of all federal ministries, after the Ministry of Defence.
Classification inconsistencies of BISP expenditures were also noted. In 2024, BISP’s estimated expenditure was classified across official budget documents into different categories, raising serious questions about transparency and making expenditure analysis challenging.
Furthermore, the World Bank 2023 public expenditure review revealed that current expenditures have breached approved allocations, and development expenditures have been squeezed to address fiscal pressures. The execution rate of current spending, on average, was 111pc for the FY08 to FY22 period, while the execution rate for development spending was significantly lower, at 81pc.
Experts referenced in the assessment say that increasing taxes alone or taking short-term austerity measures is not the answer to Pakistan’s fiscal problems. Rather, they urge structural reform measures to enhance the credibility of the budget process, develop a more accurate macro-fiscal forecast, and tighten expenditure controls.
The writer is an MPhil Scholar at the Pakistan Institute of Development Economics, Islamabad
Published in Dawn, The Business and Finance Weekly, May 25th, 2026