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To prevent a major financial crisis, we must lower taxes, cut unnecessary spending, and improve record-keeping.
BY Mahnoor | 15-06-2026
ISLAMABAD: Pakistan’s money problems are now a daily reality, not just a warning. The government is spending more every year, but its income is falling, leaving almost no money for development. Each year, the government sets high tax goals to meet IMF requirements, but it fails to collect enough money.
The cost of running the government has jumped by nearly 80% compared to a few years ago. Even with plans to cut spending, government costs have continued to rise significantly over the past year.
Staff costs rose by almost 10% to Rs427 billion because of salary increases. Government spending is growing, but the Ministry of Finance is not collecting enough tax money.
The federal government is missing out on hundreds of billions in revenue, including over Rs400 billion owed by provinces. Major unpaid amounts include Rs417 billion in gas fees, Rs171 billion from the fertilizer industry, and Rs283 billion in interest payments from provinces.
Even though past efforts failed, the government wants to collect Rs5 trillion in non-tax revenue by FY27 to reduce its budget deficit. However, people are asking how such a large goal can be met when current collections are already much lower than expected.
Unless the government actually collects its owed money and follows strict budget rules, these high targets will just be guesses rather than real money. The growing gap between planned and actual income hurts the government’s credibility, especially as its debt payments continue to rise.
Pakistan is currently one of the largest economies receiving help from the IMF, yet it still maintains a huge government of 54 ministers and advisers. This large group is a heavy cost for taxpayers, who are already struggling with higher taxes and fuel fees.
Growing too fast without stability
Between 2015 and 2025, the tax office (FBR) collected more money than ever before, but the country’s debt grew even faster. This is not just a lack of income; it is a spending problem. Instead of investing in things that help the economy grow, tax money and loans are being used to cover daily running costs. Unless the government reduces its size and spends more wisely, debt will keep rising.
At the same time, provincial governments are spending heavily on projects that look good politically rather than what the economy needs. While big projects are built, basic needs like clean water, transport, healthcare, and education are neglected. The state has pushed many of these duties onto private companies, forcing citizens to pay for their own basic services and security.
A shaky financial situation
Pakistan is stuck in a difficult economic cycle. It tries to meet IMF requirements by using quick, harmful fixes. These moves might bring temporary stability, but they discourage investment, cause money to leave the country, and limit who pays taxes.
The government only has a few tools: raising taxes, increasing interest rates, and controlling currency values. At the same time, the state is becoming more involved in the economy. This leads to a predictable result: investors and skilled workers leave, exports do not grow, and the economy loses its energy.
In May, the FBR collected Rs994 billion. This brought the total for the first 11 months of the fiscal year to Rs11.257 trillion, even with issues caused by the Iran conflict. However, customs duty collection fell short of the goal by Rs116 billion, reaching only Rs1.18 trillion—a small 2% increase.
Sales tax reached Rs3.78 trillion, missing its target by Rs457 billion, though it grew by 7.8% compared to last year. Currently, formal businesses pay most of the taxes, while many unregistered businesses avoid paying.
Outside problems and inside trouble
World politics are making local problems worse. Since February 2026, conflicts in the Middle East have raised oil prices by over 40% and gas prices by 54%. Because this country relies on imports, this causes high inflation (nearly 12%), higher costs for goods, and budget problems.
We can already see this through lower tax collections. Additionally, money sent home by workers abroad is at risk, especially from the UAE, because regional instability may threaten jobs for Pakistani workers.
On May 22, Pakistan’s foreign reserves were only $17.147 billion. Because the country relies heavily on imported energy, it is struggling with both debt and budget issues.
To reduce imports, the State Bank prefers raising interest rates rather than letting the currency value drop. After the last decision, the interest rate rose to 11.5%, making loans cost more than 12.5%. Markets expect another increase soon. While this helps control inflation, it may stop businesses from investing and slow down the economy, creating a difficult situation where growth is sacrificed to lower prices.
Basic weaknesses
Pakistan’s financial problems are built into its basic economic system:
1-Small number of taxpayers: Only 5.2 million people pay taxes in a country of 250 million. Last year, nearly 39% of those who filed reported zero income.
2-Large unofficial economy: Many businesses in retail, real estate, farming, and services do not pay taxes.
3-Poor enforcement and theft: Corruption and changing rules make it hard to collect money.
4-Too much reliance on indirect taxes: This puts an unfair cost on low- and middle-income families.
At the same time, fixed costs like paying off debt, subsidies, and non-essential spending prevent new investments and economic growth.
Why growing isn’t enough to save it
Thinking that economic growth alone can fix budget problems is wrong. In Pakistan, more growth often leads to more imports, which increases debt and causes new financial crises. High energy prices and high interest rates are also making it harder for factories to compete.
As exports fall and local businesses struggle, the country will likely need another IMF loan once the current $7 billion program ends.
Moving from temporary fixes to real solutions:
To avoid a major financial crisis, we must make permanent changes.
1-Lower taxes but collect them from more people using digital tools and better enforcement.
2-Cut unnecessary spending and move money to education, exports, and vital services.
3-Fix the energy sector by renegotiating contracts, using less imported fuel, and switching to renewable energy.
4-Improve tax collection by using automation and rewarding good performance.
5-Make sure government spending and money policies work together to help exports and investment.
6-Move away from cash by encouraging digital payments to track the economy better.
The government should also encourage Pakistanis returning from the Middle East to invest by offering them specific business opportunities.
A time to face the truth
If no action is taken, the country’s finances will get much worse. Low tax income and high debt costs will force Pakistan to borrow more, creating a dangerous cycle. This will lead to a weaker currency, higher prices, and less trust from investors.
Pakistan is at a critical turning point. The Rs684 billion gap in tax collection is a serious warning. Small changes are not enough. The country needs strong leadership, major structural changes, and consistent policies. The choice is simple: fix the system now or face a total financial disaster.
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