PAKISTAN
Published January 3, 2026
DAWN
SINCE 2022, the installed government has imposed, under the watch of the IMF, a crushing burden on ordinary Pakistanis via austerity policy. A large fiscal adjustment has been carved out through massive taxation and cuts in subsidies instead of any hint of restraint in spending by the government either on itself or on its constituents and backers. On the contrary, the spending valves have been opened like never before. Discretionary expenditure has skyrocketed, much of it ‘pork barrel’ in nature, with public funds being lavishly used for patronage and cementing loyalties towards the making of a new political order.
In the process, the entire burden of adjustment has been placed on ordinary Pakistanis and tax-compliant firms. As a result, the country is experiencing permanent economic ‘scarring’, with businesses shutting down, unemployment surging, and nearly one out of every two Pakistanis now estimated to be below the poverty line. Even the country’s farmers have not been spared, with rural poverty now estimated to be significantly higher than the rest of the country. Worse, the IMF’s orthodoxy is set to consign Pakistan to a low-growth trap for years.
An examination of public finances since 2022 is revealing. A cumulative fiscal adjustment of 5.5 per cent of GDP has taken place, the largest over a similar period in Pakistan’s history. Much of this adjustment has come from new taxation measures. The government has imposed taxes and levies totalling over Rs50.4 trillion since 2022-23 (including federal as well as provincial taxes and the petroleum levy). This is equivalent to the cumulative tax collection over the 17-year period prior to 2022. Repeating the past pattern of failure, the additional taxation has not come through tax broadening but by placing demands on existing taxpayers.
At the same time, while the government has been imposing unprecedented levels of predatory taxation, it has been unable or unwilling to rein in its spending. Overall government expenditure (centre and provinces combined) has increased 60 per cent in nominal terms between FY2023 and 2026. Non-interest expenditure has ballooned 70pc during this period.
Much of the increase in government expenditure has been in the form of political favours and patronage — large increases in salaries, allowances and pensions for the civil and military bureaucracy, parliamentarians, and the judiciary, in addition to allocation of generous discretionary funds for MNAs and MPAs. Pork barrel-ridden ‘development’ spending, a surrogate way of handing out taxpayer money to ruling coalition politicians, has surged from Rs 1.9 trillion in 2022-23 to a budgeted Rs 3.1tr in 2025-26, inclusive of federal PSDP and provincial ADPs.
Pakistanis have been crushed by fiscal austerity while the ruling elite has never had it better.
Expenditure on new fleets of cars, all-paid overseas trips for embarrassingly large delegations to different parts of the world, lavish spending on offices and official residences, etc, is on top of the foregoing. Personnel-related expenditure (salaries, allowances and pensions of the civil bureaucracy and military) alone has shot up from Rs 3.7tr to Rs 5.9tr in the past four years, cumulatively accounting for 38pc of the taxes squeezed from the economy over this period.
The massive increase in government spending on its own constituents and institutional backers since 2022 has occurred under the watch of the architect of the fiscal austerity policies — the IMF. Either the IMF is a witting party to this regime-supporting and system-legitimising operation, or it has been completely negligent in its fiduciary responsibility to ordinary citizens of a member country. Either way it should be held accountable.
A key question is whether there was a better alternative to the approach adopted, one that would have placed a lower and more bearable burden on the economy and ordinary Pakistanis. The answer is an unequivocal yes. Spreading the burden of adjustment more widely and more fairly through equitable taxation and non-essential spending cuts would have lessened the hardship.
Unfortunately, the IMF has chosen to turn a blind eye to the government’s spending profligacy and unwillingness to broaden the tax base. As a result, the entire burden of adjustment has fallen on the already taxed — salaried individuals, compliant firms, less affluent Pakistanis. Worse, under the IMF’s cookie-cutter method, fiscal consolidation is the only way to treat a public debt overhang. This approach to achieve a sustainable public debt level, however, will consign Pakistan to a low-growth trap for years without an exit.
As an illustration, using the standard debt equation, and fairly benign assumptions about economic growth and real interest rates, reaching a targeted level of public debt at 60pc of GDP will require a primary surplus of between 1.4 and 2pc of GDP each year for the next five years. Under the current IMF methodology and forbearance, this primary surplus will be achieved by even more taxation on existing taxpayers.
A singular reliance on fiscal consolidation is precisely the approach ‘the troika’ took in the case of Greece in the aftermath of the latter’s 2009 crisis, with the IMF under Christine Lagarde being a conscientious objector. Recognising that without significant debt restructuring, Greece’s economy and population will suffer catastrophic consequences for decades, the IMF proposed a sovereign debt write-off. However, Germany, as one of the largest creditors of Greece, overruled the idea and insisted on imposing fiscal austerity. The result has been the decimation of the Greek middle class, a dramatic decline in overall per capita income and widespread impoverishment.
To put Greece’s fiscal austerity-created misery into context, at its lowest point after the start of fiscal austerity, per capita income had declined by 27pc and only recovered to its pre-crisis level after 16 years.
In our case, the IMF has kept debt restructuring off the table, even though if done right it can provide much-needed fiscal space while reducing the pain and suffering inflicted on citizens. Without a fundamental rethink of the current strategy, and a change in the sham nature of the fiscal austerity being imposed, the economy will continue to be impaired for the long term, while ordinary Pakistanis will continue to suffer needlessly.
The writer has been a member of several past economic advisory councils under different prime ministers.
Published in Dawn, January 3rd, 2026
SINCE 2022, the installed government has imposed, under the watch of the IMF, a crushing burden on ordinary Pakistanis via austerity policy. A large fiscal adjustment has been carved out through massive taxation and cuts in subsidies instead of any hint of restraint in spending by the government either on itself or on its constituents and backers. On the contrary, the spending valves have been opened like never before. Discretionary expenditure has skyrocketed, much of it ‘pork barrel’ in nature, with public funds being lavishly used for patronage and cementing loyalties towards the making of a new political order.
In the process, the entire burden of adjustment has been placed on ordinary Pakistanis and tax-compliant firms. As a result, the country is experiencing permanent economic ‘scarring’, with businesses shutting down, unemployment surging, and nearly one out of every two Pakistanis now estimated to be below the poverty line. Even the country’s farmers have not been spared, with rural poverty now estimated to be significantly higher than the rest of the country. Worse, the IMF’s orthodoxy is set to consign Pakistan to a low-growth trap for years.
An examination of public finances since 2022 is revealing. A cumulative fiscal adjustment of 5.5 per cent of GDP has taken place, the largest over a similar period in Pakistan’s history. Much of this adjustment has come from new taxation measures. The government has imposed taxes and levies totalling over Rs50.4 trillion since 2022-23 (including federal as well as provincial taxes and the petroleum levy). This is equivalent to the cumulative tax collection over the 17-year period prior to 2022. Repeating the past pattern of failure, the additional taxation has not come through tax broadening but by placing demands on existing taxpayers.
At the same time, while the government has been imposing unprecedented levels of predatory taxation, it has been unable or unwilling to rein in its spending. Overall government expenditure (centre and provinces combined) has increased 60 per cent in nominal terms between FY2023 and 2026. Non-interest expenditure has ballooned 70pc during this period.
Much of the increase in government expenditure has been in the form of political favours and patronage — large increases in salaries, allowances and pensions for the civil and military bureaucracy, parliamentarians, and the judiciary, in addition to allocation of generous discretionary funds for MNAs and MPAs. Pork barrel-ridden ‘development’ spending, a surrogate way of handing out taxpayer money to ruling coalition politicians, has surged from Rs 1.9 trillion in 2022-23 to a budgeted Rs 3.1tr in 2025-26, inclusive of federal PSDP and provincial ADPs.
Pakistanis have been crushed by fiscal austerity while the ruling elite has never had it better.
Expenditure on new fleets of cars, all-paid overseas trips for embarrassingly large delegations to different parts of the world, lavish spending on offices and official residences, etc, is on top of the foregoing. Personnel-related expenditure (salaries, allowances and pensions of the civil bureaucracy and military) alone has shot up from Rs 3.7tr to Rs 5.9tr in the past four years, cumulatively accounting for 38pc of the taxes squeezed from the economy over this period.
The massive increase in government spending on its own constituents and institutional backers since 2022 has occurred under the watch of the architect of the fiscal austerity policies — the IMF. Either the IMF is a witting party to this regime-supporting and system-legitimising operation, or it has been completely negligent in its fiduciary responsibility to ordinary citizens of a member country. Either way it should be held accountable.
A key question is whether there was a better alternative to the approach adopted, one that would have placed a lower and more bearable burden on the economy and ordinary Pakistanis. The answer is an unequivocal yes. Spreading the burden of adjustment more widely and more fairly through equitable taxation and non-essential spending cuts would have lessened the hardship.
Unfortunately, the IMF has chosen to turn a blind eye to the government’s spending profligacy and unwillingness to broaden the tax base. As a result, the entire burden of adjustment has fallen on the already taxed — salaried individuals, compliant firms, less affluent Pakistanis. Worse, under the IMF’s cookie-cutter method, fiscal consolidation is the only way to treat a public debt overhang. This approach to achieve a sustainable public debt level, however, will consign Pakistan to a low-growth trap for years without an exit.
As an illustration, using the standard debt equation, and fairly benign assumptions about economic growth and real interest rates, reaching a targeted level of public debt at 60pc of GDP will require a primary surplus of between 1.4 and 2pc of GDP each year for the next five years. Under the current IMF methodology and forbearance, this primary surplus will be achieved by even more taxation on existing taxpayers.
A singular reliance on fiscal consolidation is precisely the approach ‘the troika’ took in the case of Greece in the aftermath of the latter’s 2009 crisis, with the IMF under Christine Lagarde being a conscientious objector. Recognising that without significant debt restructuring, Greece’s economy and population will suffer catastrophic consequences for decades, the IMF proposed a sovereign debt write-off. However, Germany, as one of the largest creditors of Greece, overruled the idea and insisted on imposing fiscal austerity. The result has been the decimation of the Greek middle class, a dramatic decline in overall per capita income and widespread impoverishment.
To put Greece’s fiscal austerity-created misery into context, at its lowest point after the start of fiscal austerity, per capita income had declined by 27pc and only recovered to its pre-crisis level after 16 years.
In our case, the IMF has kept debt restructuring off the table, even though if done right it can provide much-needed fiscal space while reducing the pain and suffering inflicted on citizens. Without a fundamental rethink of the current strategy, and a change in the sham nature of the fiscal austerity being imposed, the economy will continue to be impaired for the long term, while ordinary Pakistanis will continue to suffer needlessly.
The writer has been a member of several past economic advisory councils under different prime ministers.
Published in Dawn, January 3rd, 2026
