Expenditure Side of Pakistan’s Fiscal Deficit

To date, much of Pakistan’s fiscal consolidation efforts have focused on the revenue side of the budgetary deficit, while expenditure management has remained relatively neglected. Statistical modeling reveals that increases in both current and development expenditures contribute to a rise in Pakistan’s overall fiscal deficit. A review of the government’s budgetary allocations for FY 2024-25 and the past four fiscal years indicates significant potential for cost savings in government spending. The findings underscore the need to reduce the budgetary burden of mark-up payments through prudent debt management strategies, growth-oriented policies, and a data-driven approach to monetary policy. Furthermore, the study recommends reviewing defence spending, particularly employee-related expenses, to identify potential costsaving opportunities and implementing broad-based power sector reforms to alleviate the fiscal burden of subsidies. It also calls for rationalising expenditures under the Benazir Income Support Program (BISP) by enhancing administrative quality, strengthening monitoring mechanisms, and improving public service delivery. Further, the study suggests downsizing by eliminating or merging government departments and agencies with overlapping functions and closing redundant entities. Comprehensive pension reforms, informed by international best practices, are also recommended. Finally, the study advocates for more equitable allocations under the Public Sector Development Program (PSDP) and for minimising operational inefficiencies in both allocation processes and spending activities.