fiscal turnaroundor fiscal

Fiscal turnaround—or fiscal illusion?

The fiscal deficit fell to just 2.6 of GDP—the lowest in 22 years—while the primary surplus reached a record 2.9%, the highest since at least FY 2000-01tweet by Khurram Schehzad, Adviser to Federal Finance Minister

The latest official numbers tell an impressive story. Pakistan closed fiscal year 2025–26 with a consolidated budget deficit of Rs. 3.313 trillion, equal to 2.6% of gross domestic product (GDP), and a primary surplus of 2.9%. They accompany a familiar boast: the Federal Board of Revenue (FBR) achieved a “record” collection of Rs. 13.010 trillion.

In the post cited above, Adviser to the Federal Finance Minister, Khurram Schehzad, described the outcome as the “strongest fiscal performance in 22 years”. He highlighted three consecutive primary surpluses, the “lowest fiscal deficit in 22 years”, and the highest primary surplus in at least 26 years, debt growth at a 20-year low, and declining debt-to-GDP and interest burdens.

He concluded that Pakistan was moving decisively from recurring fiscal stress towards discipline, stability and sustainable growth. The improvement is real. The conclusion is premature.

The Finance Division’s newly released Fiscal Operations for July–June 2025–26 show consolidated revenue of Rs. 19.774 trillion and expenditure of Rs. 23.087 trillion. The resulting deficit is unquestionably lower than the enormous gaps of recent years.

Fiscal consolidation has occurred and should be acknowledged. The claim of a 22-year low, however, does not survive the adviser’s own infographic.

The chart accompanying the post places the deficit at 1.7% in 2003–04 and 2.5% in 2004–05—both below 2.6%. The contemporaneous Pakistan Economic Survey 2006–07, using the series then published, recorded 2.4% for 2003–04.

Revisions may explain the discrepancy between 1.7% and 2.4%, but neither figure supports an unqualified record claim. The latest statement is also provisional. The defensible description is that 2.6% is among the lowest deficits in about two decades.

More importantly, 2.6% is the consolidated deficit. The federation did not run a deficit of Rs. 3.313 trillion. Its net revenue receipts, after transfers to provinces, were Rs. 10.520 trillion, against expenditure of Rs. 15.283 trillion.

The federal deficit was Rs. 4.763 trillion, or about 3.8% of GDP. It fell to the consolidated figure because the provinces produced a combined surplus of Rs. 1.450 trillion. Punjab alone contributed Rs. 914 billion.

Provincial surpluses assist macroeconomic management but do not extinguish the federation’s borrowing requirement. They are intergovernmental cash offsets while the federal government remains deeply indebted. The earlier article, Bankruptcy of ideas—X: Debt, Taxes & Democracy, argues that shifting cash between tiers cannot repair a debt-driven state.

An even more striking adjustment appears under “statistical discrepancy”. The detailed expenditure table reports total consolidated expenditure of Rs. 23.940 trillion. A negative statistical discrepancy of Rs. 853 billion lowers expenditure in the summary to Rs. 23.087 trillion. Without this adjustment, the gap between revenue and expenditure would be about Rs. 4.167 trillion, or approximately 3.3% of GDP.

Statistical discrepancies are not unusual in provisional accounts. An adjustment equal to more than one-quarter of the celebrated deficit nevertheless demands explanation before a historic record is proclaimed. Transparency requires reconciliation of this amount when the accounts are finalised.

The composition of expenditure further weakens the triumphal narrative. Mark-up payments reached Rs. 6.948 trillion—5.5% of GDP. Federal Public Sector Development Programme expenditure, excluding development grants to provinces, was only Rs. 727 billion. Interest was therefore about 9.6 times the federal development programme. A deficit can fall because investment and public services are compressed while inherited interest obligations continue dominating expenditure. That is fiscal compression, not fiscal transformation.

The “record” FBR’s collection claim presents a similar illusion. With inflation and nominal GDP growth, the largest rupee collection will normally recur. The relevant questions are whether revenue rose relative to GDP, the base broadened and additional taxation reduced borrowing.

FBR’s Rs. 13.010 trillion was only 10.3% of GDP. It was about Rs. 1.12 trillion below the original target of Rs. 14.13 trillion and barely exceeded the subsequently revised figure of approximately Rs. 12.983 trillion. The goalpost was moved, and arrival at the moved goalpost was described as a record.

Analysis of Pakistan’s withholding-based system [Tax Proposals for Budget 2027—III: Withholdingisation: Weapon of destruction, Minute Mirror, May 25, 2026 and FBR’s Performance FY 2024-25 (Part II): Income Tax or Expropriatory Taxation, Minute Mirror, April 14, 2026] has repeatedly shown why aggregate collection cannot be equated with administrative performance.

During FY 2024–25, withholding and advance collection accounted for about 96% of income tax, leaving only a small fraction attributable to returns and enforcement.

Employers, banks, utilities, importers and businesses collect much of FBR’s revenue on behalf of the state. Extraction at source is not evidence that concealed income has been discovered or that privileged sectors have entered the tax net.

The latest statement also exposes reliance on non-tax revenue. Federal non-tax receipts reached Rs. 5.178 trillion. These included Rs. 2.428 trillion transferred as State Bank of Pakistan surplus and Rs.1.567 trillion collected as petroleum levy. Together, the two sources provided almost Rs. 4 trillion.

As explained in Bankruptcy of ideas—VII: The Petroleum (Levy) State, the petrolem levy operates as inflationary and regressive extraction. It raises transport, agricultural, industrial and household costs. It also remains outside the divisible pool, allowing the federation to retain revenue that would otherwise be shared under the National Finance Commission framework. A large central-bank transfer and an ever-rising fuel levy cannot substitute for fair, broad-based taxation.

Debt servicing supplies the decisive test. Cash mark-up payments of Rs. 6.948 trillion absorbed 53.4% of FBR collection and about 66% of federal net revenue receipts. Domestic interest alone was Rs. 6.030 trillion; foreign interest was Rs. 917 billion. These figures do not include refinancing of maturing domestic principal.

The financing table reports gross external financing of Rs. 3.805 trillion and external debt repayments of Rs. 2.627 trillion. Programme loans alone amounted to Rs. 2.054 trillion. The federal deficit required net financing of Rs. 4.763 trillion: Rs. 1.178 trillion externally and Rs. 3.585 trillion domestically. State Bank financing reached Rs. 3.202 trillion. These amounts reveal continued dependence on creditors and domestic banks. Slower debt growth is welcome; continuing debt dependence is not fiscal sovereignty.

The primary surplus of Rs. 3.634 trillion, or 2.9% of GDP, must also be interpreted correctly. It shows that revenue exceeded non-interest expenditure. It simultaneously exposes the debt trap: after interest of Rs. 6.948 trillion was added, the primary surplus turned into the consolidated deficit of Rs. 3.313 trillion.

Present taxpayers and public expenditure were squeezed to meet obligations created by past borrowing. This conclusion is consistent with earlier work on fiscal illusion and the wider argument developed in A perpetual fiscal debacle.

Pakistan’s fiscal disorder is not caused merely by insufficient taxation. It arises from unproductive expenditure, tax expenditures, state-owned-enterprise losses, energy-sector inefficiencies, privileges, weak local government and borrowing without development.

Genuine success would require a sustained decline in federal borrowing; interest growing more slowly than revenue; reduced reliance on programme loans and banks; tax-to-GDP growth through broadening rather than withholding; transparent accounting for refunds, arrears and discrepancies; and protection of development and social services. This is ultimately a question of constitutional political economy.

Fiscal policy determines who bears public burdens, which institutions receive resources and whether borrowing finances future productive capacity or present privilege.

A lower accounting ratio has limited democratic value when citizens receive fewer public goods while creditors acquire an ever-larger prior claim over national revenue.

The proper verdict is measured but firm. The adviser is right that fiscal consolidation occurred, three consecutive primary surpluses matter, and the latest surplus is exceptional. His infographic does not establish a 22-year-low deficit, while the claim that record FBR collection proves structural reform remains a myth.

Pakistan still borrowed trillions, paid nearly Rs. 7 trillion in interest, relied on loans and non-tax extraction, and reached 2.6% after provincial surpluses and a large negative statistical discrepancy.

A state cannot borrow to service debt, suppress development, tax the already taxed and then declare fiscal victory because the resulting deficit ratio is smaller. The arithmetic has improved. The fiscal order has not been reconstructed.

_______________________________________________________________________

Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, environment, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws.  He holds an LLD in tax laws with specialization in transfer pricing.

He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996.

He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He is Chief Editor of TaxationHe is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA).  He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include, Tax Reforms in Pakistan: Historic & Critical Review, Towards Broad, Flat, Low-rate, and Predictable Taxes (third edition, 2024),  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).

He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 3000 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

_______________________________________________________________

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan.

His areas of expertise include legal, strategic planning, cross-border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to ensure knowledge transfer.

His notable publications are Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.

His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .

The recent publication, coauthored by these writes with Huzaima Bukhari is:                       

Pakistan Tackling FATF: Challenges & Solutions, available at:

https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35

https://www.amazon.com/dp/B08RXH8W46

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  • The Orchard Classroom: Remembering Dr Pervez Butt

    Dr Pervez Butt died on the 26th of July, 2026, at the age of 84, and with him Pakistan lost one of the last living architects of its nuclear age. The obituaries will rightly recount the long arc of his public service: joining the Pakistan Atomic Energy Commission in 1963, cutting his teeth on the design of KANUPP-I, Pakistan’s first commercial nuclear power plant, spending years at GE Canada absorbing the discipline of reactor engineering, and eventually rising to chair the PAEC from 2001 to 2006 — a tenure during which he oversaw the expansion of Chashma and laid groundwork that would carry Pakistan’s nuclear power programme well into this century. He would go on to serve as Federal Secretary for Science and Technology, as an adviser at the Planning Commission, and, until his final days, as a quiet counsel to the National Command Authority. Nishan-i-Imtiaz, Hilal-i-Imtiaz, Sitara-i-Imtiaz — the honours are a matter of record.     But I did not know him first as a chairman or a decorated public servant. I knew him as a teacher who happened to hold the keys to some of the country’s most consequential engineering decisions, and who chose, for reasons I am still grateful for, to hand a few of those keys to me. I want to remember him the way I actually experienced him — not through the official biography, but through three long afternoons at his house in F-11 Sector, Islamabad, where he taught me something the textbooks never quite manage: how the price of nuclear electricity in Pakistan is actually determined. Anyone who has sat through a lecture on tariff determination knows how dry the subject can be made to sound — EPC cost, fuel cost, capacity purchase price, energy purchase price, indexation, decommissioning liability. Dr. Butt made none of it dry. He made it a ritual. Each session began the same way, and the way it began told you everything about the man. There was no walking straight into the numbers. First came tea — always a full spread of dry fruits, delicate sandwiches, fresh fruit, chana chaat, and cappuccino. It was in his drawing room that I had my first Cortado, and my first Mocha, both poured by a man who clearly took as much pride in introducing a good cup of coffee as he did in explaining a heat-rate calculation. Only once the plates were cleared did the real class begin. He held nothing back. The sessions ran from ten in the morning until nearly four in the afternoon — six hours at a stretch, with no formal lunch break at all. Instead, somewhere past midday, a trolley would appear, loaded with Lahori chanay and naan, and he would keep teaching straight through it, tariff formulas in one breath and the economics of fuel fabrication cost in the next, a piece of naan in hand the whole time. I have sat in university seminars with more structure and far less learned. What I remember most, though, is the break. Every two hours, without fail, he would stop — not because he was tired, but because he knew I smoked, and he had built an orchard directly across the road from his house for exactly this purpose. We would walk over together, and his waiter would already be there ahead of us, a fresh cappuccino on the table, an ashtray set out with wet tissue paper folded neatly beside it — a small, deliberate touch that told you this man planned for his guests down to the last detail. And it was in that orchard, not at his desk, that the real teaching happened. He would ask me, plainly, to repeat back what I had just understood. Not to test me — to correct me, gently, if I had drifted, and to make sure the idea had actually landed before we walked back inside for the next round. I was, I suspect, an unlikely student for him to invest that kind of care in. I have never been a person drawn to nuclear energy for its own sake — the physics of it, the fission and the neutrons and the reactor cores, left me largely unmoved. What pulled me toward him was the economics: how a country decides what a unit of nuclear electricity should cost, how the capital recovery on a plant like K-2 or C-3 gets built into a tariff, how fuel cost and EPC cost and decommissioning liability all get stitched together into a number that regulators can defend and the public can pay. That was the language I wanted to learn, and he taught it to me the way he taught everything — thoroughly, patiently, and without ever once looking at the clock. Looking back, I think that was the most VIP treatment anyone taught by him could have asked for — not a title, not a certificate, but three full days of a man who had chaired the PAEC choosing to spend his mornings, his working lunches, and his smoking breaks making sure a subject I hadn’t cared about a week earlier had become one I could speak on with confidence. Pakistan will remember Dr. Pervez Butt for KANUPP and Chashma, for the plants he helped design and the institutions he helped build — the Pakistan Welding Institute, the nondestructive testing facility at Taxila, decades spent quietly ensuring that a technically demanding and politically sensitive programme kept working. Those achievements belong to the history books, and they are considerable. I will remember the orchard. I will remember a Cortado poured by a man who insisted the tea come before the tariff, and a lecture that never stopped even for lunch. That was his real gift — not just what he knew, but how completely he was willing to give his time to make sure someone else knew it too. Rest well, sir. The lesson stayed.

  • Punjab’s Waste Crisis Cannot Be Solved with …

    Every few months, Punjab returns to the same debate. Dog bites increase, public anxiety rises, and municipal authorities respond with culling campaigns. Dogs are shot, statements are issued, and for a few days it appears that decisive action has been taken. Then nothing changes. The bites continue, waste continues to pile up, and the cycle begins again. The uncomfortable truth is that Punjab does not have a stray dog problem in isolation. It has a waste management problem, an urban planning problem, and ultimately, a governance problem. One only needs to travel through the outskirts of Lahore or many of Punjab’s cities to see overflowing waste heaps, open dumping grounds, discarded food waste, and slaughterhouse refuse left unattended. These sites provide a constant food source for free-roaming animals. Where food accumulates, animals follow. This is not unique to Pakistan; it is basic ecology. Street dogs do not manufacture garbage. They survive on what human beings leave behind. As long as our streets, markets, canals and vacant plots continue to function as open feeding grounds, no amount of culling will produce a lasting reduction in dog populations. Removing one group of animals from an area where food remains plentiful simply creates space for others to move in. For decades, Punjab has relied on culling as its primary response, yet dog bites and rabies continue to challenge public health. That record alone should force us to ask whether we are treating the disease or merely its symptoms. The issue extends far beyond dog bites. Poor waste management contributes to contaminated water, insect infestations, rodent populations, respiratory illnesses and the spread of infectious diseases. It burdens hospitals, damages the environment and undermines the quality of life in our cities. Every neglected dumping site becomes a reminder that sanitation is not merely a municipal service; it is a public health obligation. This is precisely why the constitutional right to life under Article 9 has, over the years, been interpreted by Pakistan’s superior courts to include the right to live in a healthy and clean environment. Environmental jurisprudence in Pakistan has consistently recognised that life means far more than mere existence. It includes the conditions necessary for a life of dignity, health and safety. When waste remains unmanaged and environmental hazards are ignored, these constitutional guarantees lose much of their meaning. Animal welfare forms part of this larger constitutional conversation. Justice Athar Minallah’s jurisprudence transformed the legal understanding of animals in Pakistan by recognising that they are living beings with intrinsic value rather than mere property. More recently, Justice Khadim Hussain Soomro reaffirmed that cruelty towards animals cannot be separated from the constitutional promise of a humane and civilised society. These decisions did not elevate animal welfare above human welfare. They recognised that the two are inseparable. A society that neglects its environment inevitably harms both people and animals. That is why the internationally accepted One Health approach has become increasingly important. It rejects the false choice between protecting humans and protecting animals. Instead, it recognises that the health of people, animals and the environment are interdependent. Rabies control, waste management, environmental protection and humane animal population management are all part of the same public health strategy. Unfortunately, events on the ground often tell a different story. Reports continue to surface of dogs being shot despite the adoption of more humane management policies. Even more troubling are allegations that animal carcasses are sometimes left exposed instead of being disposed of through proper veterinary and municipal protocols. Around areas such as Saggian Pull, residents have repeatedly raised concerns about carcasses remaining in the open. If these reports are accurate, they expose a profound contradiction. Animals are killed in the name of preventing disease, yet their remains are allegedly left in conditions that can themselves create environmental and health hazards. Exposed carcasses attract scavengers, contaminate the surrounding environment, encourage insect activity and reflect a complete breakdown in biosecurity practices. Disease prevention does not end when an animal dies. Proper disposal is an essential part of public health. The solution does not lie in choosing between protecting people and protecting animals. That has always been a false debate. The real choice is between science and symbolism. Science tells us that cleaner cities, effective waste collection, proper disposal of slaughterhouse waste, vaccination programmes, sterilisation, environmental management and public education reduce disease risks far more effectively than periodic culling campaigns. Symbolism tells us that firing a gun creates the appearance of action while leaving the underlying causes untouched. Punjab has an opportunity to move beyond crisis management. It can strengthen municipal waste systems, enforce environmental laws, implement the Animal Birth Control Policy in both letter and spirit, improve vaccination programmes, and ensure that every department responsible for public health, veterinary services, local government and environmental protection works as part of a coordinated strategy rather than in isolation. The Constitution already points us in that direction. The courts have reinforced it. Science supports it. What remains is the political will to recognise that cleaner cities will save more human lives than another culling campaign ever could. Until Punjab confronts the mountains of waste accumulating in its streets, vacant plots and waterways, it will continue fighting the consequences of environmental neglect while ignoring the source of the problem. Bullets may remove a dog from sight, but they cannot remove the garbage that brought it there in the first place.

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