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Fiscal Failure — CSS Professional Notes

(Dawn Editorial, September 15, 2025)

Introduction

The editorial “Fiscal Failure” highlights Pakistan’s alarming fiscal trajectory, focusing on the explosive rise in public debt, the shrinking fiscal space, and the risks of economic instability. It underscores that unchecked borrowing and weak fiscal management have pushed Pakistan into a dangerous zone where debt accumulation threatens not only macroeconomic stability but also the country’s ability to provide essential services. The piece argues that without urgent reforms in revenue generation, spending discipline, and sustainable borrowing, Pakistan may soon confront a full-blown fiscal crisis.

Contextual Background

Pakistan’s fiscal position has been under strain for decades, with governments borrowing heavily to finance deficits rather than expanding the revenue base. Over the past financial year, public debt ballooned by approximately Rs 9.3 trillion, pushing the overall stock to nearly Rs 80.5 trillion by June 2025. On average, the state added about Rs 25.4 billion in new debt every single day. Equally troubling is the debt-to-GDP ratio, which surged to around 70 percent, well above sustainable levels for a developing economy.

These figures expose a structural flaw: the country borrows not for productive investment but to cover routine expenses, including debt servicing itself. The consequence is a vicious cycle — more borrowing leads to higher interest payments, which in turn require even more borrowing.

Main Arguments of the Editorial

The first argument is that Pakistan is on an unsustainable borrowing spree, where debt is being piled on without adequate economic returns. Such borrowing is not linked to development or growth-generating activities but to financing recurrent expenditure.

Secondly, the editorial stresses that debt servicing pressures are crowding out productive spending. A growing portion of the budget is consumed by interest and repayment obligations, leaving less for health, education, infrastructure, and welfare. This erodes state capacity and weakens social contracts.

Thirdly, the editorial warns of a looming fiscal breakdown. High debt levels make the country increasingly vulnerable to external shocks such as global interest rate hikes, exchange rate depreciation, or declines in foreign inflows. These risks can sharply increase the cost of borrowing and tip the economy into crisis.

Finally, the piece highlights the need for structural reforms, particularly in revenue mobilization, broadening the tax net, curbing wasteful expenditures, improving transparency, and borrowing only under sustainable terms. Without such corrective action, Pakistan’s fiscal future will remain perilous.

Implications

Constitutionally and institutionally, fiscal mismanagement undermines the state’s ability to fulfill its obligations to citizens. Economically, high debt depresses investment, raises inflationary risks, and fuels instability. Politically, fiscal distress weakens the legitimacy of governments, as austerity measures and rising taxation hurt the public. Socially, the burden falls hardest on vulnerable groups who lose access to subsidies, public services, and affordable living conditions.

Critical Assessment

The strength of the editorial lies in its use of clear data points — daily debt accumulation, total debt stock, and the debt-to-GDP ratio — which provide undeniable evidence of the severity of the crisis. It also draws an important link between debt dynamics and reduced fiscal space for social development.

However, the piece could have further explored why Pakistan consistently fails to broaden its tax base or reform its expenditure priorities. A deeper discussion of political economy — elite resistance to taxation, misaligned subsidies, and weak institutions — would have added richness to the analysis. Nonetheless, the editorial succeeds in sounding an urgent alarm about Pakistan’s fiscal path.

Reform Proposals

To address the problem, several reforms are necessary. First, broadening the tax base is essential. This means bringing untaxed sectors such as agriculture, real estate, and wholesale trade into the tax net. Second, the government must enforce expenditure discipline, cutting wasteful and non-priority spending while protecting development and social sectors. Third, borrowing should be sustainable, with a shift toward concessional, long-term financing rather than short-term, high-interest loans. Fourth, institutional reforms must be introduced, such as stronger parliamentary oversight, independent debt audits, and fiscal transparency. Finally, boosting economic growth through export promotion, industrial productivity, and investment in technology is vital to ease the debt burden relative to GDP.

Vocabulary for CSS (with Urdu)

CSS-Oriented Questions

Essay Questions

1. “Debt, Deficits, and Development: Is Pakistan on the Path of Fiscal Failure?”

2. “Fiscal Discipline vs Fiscal Collapse: Lessons for Pakistan’s Economy.”

Short Notes

• Debt-to-GDP ratio and its importance for fiscal stability.

• Debt servicing as a constraint on social spending.

• Fiscal space and economic governance.

Problem-Based Questions

• If you were the finance minister, how would you reduce Pakistan’s debt-to-GDP ratio to below 60%?

• Design a three-pillar fiscal reform plan focusing on revenue, expenditure, and growth.

Conclusion

The editorial “Fiscal Failure” serves as a stark warning that Pakistan’s debt trajectory is unsustainable and fraught with risks. Rising debt stock, surging debt-to-GDP ratio, and relentless borrowing threaten to trap the economy in a cycle of crisis. Unless urgent measures are taken to broaden the tax base, enforce spending discipline, improve transparency, and borrow responsibly, Pakistan’s fiscal position will continue to deteriorate. The choice before policymakers is clear: either act decisively to restore stability or risk the consequences of true fiscal collapse.