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ISLAMABAD: Budget allocations for Pakistan’s Information Technology and Telecommunication sector have surged from Rs1.1 billion to Rs28.9 billion, according to a new report by the Economic Policy and Business Development (EPBD). The sector’s share in the Public Sector Development Programme (PSDP) also grew from 0.2% to 2.1%, indicating a clear shift in policy toward digital transformation and economic modernization.
The findings were published in a report titled Decoding Pakistan’s Budget Dynamics, authored by Muhammad Mubasal, which underscores the growing importance of the digital economy and other emerging policy priorities.
The report highlights that along with IT and Telecom, climate financing has seen remarkable growth—from negligible allocations to Rs260 billion by fiscal year 2025. These developments signify a broader shift in national priorities to address climate change and expand digital infrastructure.
However, this forward-looking allocation is set against a backdrop of worsening fiscal imbalance, where the current-to-development expenditure ratio has deteriorated from 2.2:1 in FY10 to 10.3:1 by FY25. This imbalance reflects an unsustainable consumption bias, undermining long-term economic growth.
Mounting Debt and Development Undermining
Pakistan faces a crushing debt burden, with debt servicing increasing by 1,411% over the 15-year period (19.8% CAGR), far exceeding GDP growth (15.3% CAGR). By FY25, debt servicing consumes 56.8% of current expenditure, leaving limited fiscal space for development initiatives.
While development expenditure has grown at a meager 5.4% CAGR, current expenditure rose by 16.7%, shrinking development’s budget share from 31% to just 8.9%. This shift reflects severe underfunding of critical development programs. Despite repeated reforms, the power sector remains troubled, with power subsidies increasing by 1,676% (21.3% CAGR), highlighting ongoing structural inefficiencies.
Meanwhile, social protection has emerged as a central budgetary concern. Expenditure on social safety nets skyrocketed by 15,489% (38.7% CAGR), demonstrating a major policy pivot. However, investment in human capital remains concerningly low. The health and education sectors reported the lowest growth rates—10.3% and 8.3% CAGR respectively—well below the overall budget growth rate of 14.7%.
Revenue Stagnation and Fiscal Risks
The report also details a significant shift in fiscal federalism following the 7th NFC Award, which increased the provincial share of federal resources by 1,036% (17.7% CAGR). Provincial PSDP grew at twice the rate of the Federal PSDP, redistributing fiscal responsibility but not solving overall fiscal stagnation.
Despite tax revenues growing by 768% (15.5% CAGR), the tax-to-GDP ratio has hovered around 10–11%, revealing persistent weaknesses in revenue mobilization. The reliance on central bank financing has grown, with SBP profits up by 1,567% (20.7% CAGR), underscoring a dependence on monetary financing over sustainable taxation.
Domestic borrowing has increased alarmingly by 3,471% (28.4% CAGR), whereas external financing only grew by 30.6% (1.8% CAGR)—signaling a risky shift toward unsustainable domestic debt.
The 15-year span from FY2010 to FY2025 marks a transformative but turbulent period in Pakistan’s fiscal history, defined by shifting policy priorities, mounting debt, and underinvestment in development. While strides have been made in areas like IT & Telecom, climate financing, and social protection, the budget still reflects structural flaws—particularly in revenue generation and human capital development. A more balanced and resilient fiscal framework is essential to sustain Pakistan’s growth trajectory in the years ahead.
