Key takeaways
- Debt servicing rose from about 28% of the budget in 2009-10 to a projected 46.7% in 2025-26.
- Interest costs grew over 1,000%, from under PKR 700 billion to PKR 8.2 trillion.
- Development spending fell from about 27.5% to 5.69% of the federal budget.
- Subsidies of PKR 1.18 trillion now exceed the entire federal development programme.
- Debt management, tax-base expansion and subsidy reform are needed to restore investment.
In this Business Recorder column (July 2025), Dr. Ghulam Mohey-ud-din uses fifteen years of federal budget data to show how debt servicing has crowded out the spending that builds Pakistan’s future capacity.
The argument
The federal budget grew roughly sevenfold in nominal terms between 2009-10 and 2025-26, but its composition changed sharply. Interest payments took about 28 percent of the budget in 2009-10; they are projected at 46.7 percent, or PKR 8.21 trillion, in 2025-26, after peaking near 52 percent in the outgoing year. Over the period, interest costs rose by more than 1,000 percent, from under PKR 700 billion.
Development spending moved the other way. The federal development programme fell from about 27.5 percent of the budget to 5.69 percent, growing only 205 percent in absolute terms, from PKR 421 billion to PKR 1.287 trillion. Subsidies, at PKR 1.18 trillion in 2025-26, now exceed the entire development programme.
The consequences reach beyond the budget. Heavy government borrowing from domestic banks at high interest rates crowds out private credit, discouraging investment and job creation. Chronic underfunding erodes schools, hospitals and infrastructure. And the pattern is unfair across generations: today’s taxpayers service past debts while young people inherit weaker public services.
What needs to change
- A comprehensive debt management strategy that goes beyond rescheduling and limits non-productive borrowing.
- A broader tax base, including the informal sector and an end to elite exemptions.
- Redirect poorly targeted subsidies to health, education and infrastructure.
- Stronger institutions to make sure public investment is spent where it raises productivity.