THE federal government’s debt, excluding loans from International Monetary Fund (IMF) and some other liabilities, jumped to Rs83.6 trillion by June this year, marking a cumulative increase of 75% during the past four years despite a significant surge in revenues. State Bank of Pakistan (SBP) on Tuesday released the debt bulletin for fiscal year 2025-26 to the extent of the direct debt burden of the central government. The situation underscores the urgent need to move beyond short-term borrowing and adopt a sustainable strategy to break the cycle of debt.
The government’s efforts to increase revenues, including Prime Minister Shehbaz Sharif’s regular review of ongoing FBR reforms, are encouraging. However, our tax-to-GDP ratio remains low compared with many other countries. There is, therefore, a dire need to bring all potential sectors and untapped sources of income into the tax net. A broader and fairer tax base is the only sustainable way to reduce the burden on compliant and honest taxpayers, who currently carry a disproportionate share of the tax burden. At the same time, government officials must go beyond statements and take practical measures to achieve genuine export-led growth. The decline in exports last year is a reminder that ambitious targets alone cannot strengthen the country’s external position. We need to diversify export basket, improve product quality, reduce the cost of doing business and create an environment that encourages investment in export-oriented industries. The second phase of CPEC provides an important opportunity in this regard. Greater focus should be placed on enhancing productivity in agriculture, industry and the IT sector, while developing value-added products and services for international markets. Fiscal discipline, a broader tax base, prudent expenditure and, above all, sustained export growth must go hand in hand. Unless the country earns substantially more foreign exchange through diversified exports, borrowing will continue to fill the gap. Breaking free from the debt trap therefore requires a shift from a borrowing-dependent economy to one driven by production, investment and exports.
