annashay 
Pakistan’s fiscal journey since its independence on 23 March 1940 has been a complex and challenging one. The country’s budgetary allocations have played a crucial role in shaping its economic trajectory, with various governments implementing different policies and strategies to address the nation’s fiscal needs. From the early years of independence to the present day, Pakistan’s budget has been influenced by a range of factors, including political instability, economic crises, and social pressures.¹ Understanding the evolution of Pakistan’s budgetary allocations is essential to grasping the country’s fiscal journey and identifying areas for improvement. As Pakistan celebrates its independence, it is essential to reflect on the country’s fiscal progress and the challenges it has faced over the years. The budgetary process in Pakistan has undergone significant changes, with efforts to rationalize and improve the allocation of resources.² Despite these efforts, the country continues to face fiscal challenges, including a mounting fiscal deficit and inadequate allocation of resources to key sectors such as education and healthcare.³ A comprehensive analysis of Pakistan’s budgetary allocations since independence can provide valuable insights into the country’s fiscal journey and inform policy decisions to promote sustainable economic growth and development.
Pakistan’s fiscal journey began on a challenging note in the 1940s and 1950s, with the newly independent nation facing significant budgetary constraints. The country’s first budget, presented in 1947, allocated a mere Rs.150 million for development expenditure, highlighting the limited fiscal resources available to the government. During this period, Pakistan’s budgetary allocations were largely influenced by the country’s colonial legacy, with a focus on maintaining law and order, and investing in infrastructure development. The government also relied heavily on foreign aid, particularly from the United States, to finance its development projects. Despite these challenges, the 1950s saw some significant fiscal reforms, including the introduction of the first Five-Year Plan in 1955, which aimed to promote rapid industrialization and economic growth. However, the plan’s ambitious targets were not fully realized, and the country’s fiscal challenges persisted, setting the stage for future budgetary struggles. The 1960s marked a significant turning point in Pakistan’s fiscal journey, with the government implementing a series of policies aimed at rapid industrialization and economic growth. The decade saw a substantial increase in development expenditure, with the government allocating significant resources to infrastructure development, particularly in the areas of irrigation, transportation, and energy. The introduction of the Second Five-Year Plan in 1960, which focused on import-substitution industrialization, also led to a significant increase in public investment in key sectors such as textiles, steel, and cement. Additionally, the government’s decision to devalue the rupee in 1959 and introduce a new tax system in 1963 helped to improve the country’s fiscal position and attract foreign investment. As a result, Pakistan’s economy experienced rapid growth during the 1960s, with GDP growth averaging around 6% per annum, making it one of the fastest-growing economies in Asia at the time.
Opposite to 60s, 1970s were a tumultuous decade for Pakistan’s fiscal journey, marked by significant economic and political upheavals. The government’s decision to nationalize key industries, including banking, textiles, and steel, in 1972 led to a substantial increase in public sector expenditure, which put pressure on the country’s fiscal resources. Additionally, the 1973 oil price shock and the subsequent increase in global commodity prices led to a sharp rise in Pakistan’s import bill, further exacerbating the country’s fiscal challenges. The government’s response to these challenges, including the introduction of a new tax system in 1977, was inadequate, and the country’s fiscal deficit continued to widen. As a result, Pakistan’s economy experienced a period of stagnation during the 1970s, with GDP growth averaging around 3% per annum, and the country’s fiscal position remained precarious, setting the stage for future economic crises but 1980s marked a significant shift in Pakistan’s fiscal journey, with the government introducing a series of economic reforms aimed at liberalizing the economy and promoting private sector growth. The regime of General Zia-ul-Haq, which came to power in 1977, implemented a range of policies aimed at reducing the role of the public sector and increasing the participation of private enterprise in the economy. The government’s budgetary allocations during this period reflected this shift, with a significant increase in resources allocated to the private sector and a corresponding decrease in public sector expenditure. Additionally, the government introduced a range of tax reforms, including the introduction of a general sales tax in 1982, aimed at broadening the tax base and increasing revenue collection. As a result, Pakistan’s economy experienced a period of rapid growth during the 1980s, with GDP growth averaging around 6% per annum, and the country’s fiscal position improved significantly, with a reduction in the fiscal deficit and an increase in foreign exchange reserves.
In 1990s, Pakistan confronts severe economic challenges, with the country grappling with a severe fiscal crisis characterized by substantial budget deficits, high inflation, and economic stagnation. The government’s budgetary allocations during this period were shaped by the country’s participation in the IMF’s Structural Adjustment Program, which aimed to stabilize the economy and implement structural reforms. While the program led to reductions in public spending, it also resulted in increased taxation, including the introduction of a value-added tax, which disproportionately affected the poor while, between 2000 and 2010, Pakistan’s fiscal situation improved significantly, driven by rapid economic growth fueled by foreign investment, remittances, and domestic credit expansion. The government’s budgetary allocations during this period reflected the country’s growing economic prosperity, with increased funding for the social sector, including education and healthcare. Tax reforms, such as the new income tax law introduced in 2002, aimed to broaden the tax base and increase revenue. However, Pakistan’s fiscal vulnerability to external shocks persisted, including fluctuations in global oil prices and foreign investment. Furthermore, Pakistan’s fiscal journey from 2010 to 2024 has been marked by a mix of challenges, reforms, and progress. The government’s budgetary allocations during this period have been influenced by a range of factors, including the country’s fragile economic growth, persistent fiscal deficits, and the need to address pressing social and development challenges. Despite these challenges, Pakistan has made significant progress in implementing fiscal reforms, including the introduction of a new fiscal responsibility law, the establishment of an independent fiscal council, and efforts to strengthen tax administration and broaden the tax base. The government has also increased funding for key social sectors, including education, healthcare, and social protection, and has implemented initiatives aimed at promoting economic growth and job creation, such as the China-Pakistan Economic Corridor (CPEC). However, Pakistan’s fiscal position remains vulnerable to external shocks, including fluctuations in global oil prices, changes in international trade policies, and the ongoing impact of the COVID-19 pandemic. Furthermore, the country continues to face significant development challenges, including a large infrastructure gap, a shortage of skilled workers, and a need to promote private sector development and entrepreneurship. Overall, Pakistan’s fiscal journey from 2010 to 2024 has been complex and challenging, but the country has made significant progress in implementing fiscal reforms and promoting economic growth and development, and efforts are being made to address the remaining challenges and achieve sustainable and inclusive growth.
Lessons Pakistan must learn to secure the future
Pakistan’s fiscal journey since 1940 has been a rollercoaster ride of challenges and opportunities. To move forward, Pakistan must learn from its past experiences.
Diversification and Self-Reliance are crucial lessons that Pakistan must take away from its fiscal journey. The country’s over-reliance on foreign aid and loans has led to a debt trap, stifling economic growth and development. Pakistan must focus on diversifying its economy, promoting local industries, and increasing exports to reduce its dependence on foreign assistance.
Investing in Human Capital is another vital lesson. Pakistan’s fiscal policies have often neglected the social sector, leading to inadequate funding for education, healthcare, and social protection. Investing in human capital is essential for promoting economic growth, reducing poverty, and improving living standards.
Fiscal Discipline and Responsibility are also essential lessons that Pakistan must learn. The country’s fiscal policies have often been marred by a lack of discipline and responsibility, leading to fiscal deficits, inflation, and economic instability. Pakistan must adopt a more disciplined and responsible approach to fiscal management, ensuring that its budgetary allocations are guided by a clear vision and strategy for economic development.
Importance of Tax Reforms: Pakistan’s tax-to-GDP ratio is one of the lowest in the world. The country needs to implement comprehensive tax reforms to broaden its tax base, reduce tax evasion, and increase revenue collection.
Need for Investment in Infrastructure: Pakistan’s infrastructure, including roads, railways, and energy systems, is in dire need of upgrade and expansion. Investing in infrastructure can help boost economic growth, improve connectivity, and increase competitiveness.
Agricultural Sector Reforms: Agriculture is the backbone of Pakistan’s economy, but the sector has been neglected for decades. Pakistan needs to implement reforms to increase agricultural productivity, improve irrigation systems, and provide support to farmers.
Promoting Private Sector Development: Pakistan’s private sector has been stifled by bureaucratic red tape, corruption, and lack of access to finance. The government needs to create a more conducive business environment to promote private sector development and entrepreneurship.
Addressing Energy Crisis: Pakistan’s energy crisis has been a major constraint to economic growth. The government needs to invest in renewable energy sources, improve energy efficiency, and address the issue of circular debt to resolve the energy crisis.
Improving Governance and Institutional Framework: Pakistan’s fiscal management has been marred by corruption, mismanagement, and lack of transparency. The government needs to strengthen its institutions, improve governance, and increase transparency to ensure effective fiscal management.
Reducing Dependence on Remittances: Pakistan’s economy is heavily dependent on remittances from overseas workers. While remittances have been a lifeline for the economy, Pakistan needs to reduce its dependence on them by promoting exports, foreign investment, and domestic industries.
Addressing Regional Disparities: Pakistan’s economic growth has been concentrated in a few urban centers, leaving rural areas and smaller provinces behind. The government needs to address regional disparities by investing in infrastructure, education, and healthcare in underserved areas.
Promoting Human Development: Pakistan’s human development indicators, including education, healthcare, and poverty reduction, are among the worst in the world. The government needs to prioritize human development by increasing funding for education, healthcare, and social protection programs.
Encouraging Foreign Investment: Pakistan needs to create a more conducive business environment to attract foreign investment, promote joint ventures, and encourage technology transfer.
It is therefore concluded that, Pakistan’s fiscal journey since 1940 has been marked by numerous challenges and complexities, influenced by factors such as political instability, economic crises, and social pressures. Despite achieving notable progress in fiscal reforms and economic growth, Pakistan still grapples with significant fiscal challenges, including a substantial fiscal deficit, inadequate resource allocation, and vulnerability to external shocks. To ensure a prosperous future, Pakistan must draw lessons from its past, focusing on self-reliance, human capital development, and responsible fiscal management. By addressing these challenges and promoting sustainable growth, Pakistan can unlock its potential and achieve economic prosperity for its people.
