Pakistan’s Debt Crisis Is About Expenditure, Not Taxes — And PSX Knows It

Where the Money Actually Goes: The Expenditure Reality

This is where the debate usually ends — because the numbers are hard to defend.

Major Federal Expenditures (FY25–26)

Critical detail:
Domestic debt interest alone accounts for ≈ 87.7% of total interest outlays.

This is a classic debt-servicing spiral:

• Borrow more → pay higher interest

• Pay higher interest → collect more taxes

• Collect more taxes → still borrow more

At this point, taxation is no longer developmental. It is maintenance spending.

Inflation Was Cost-Push — Policy Treated It Like Demand-Pull

One of the most consequential policy errors of the last cycle was misdiagnosing inflation.

What Actually Drove Inflation

Based on the PRAC analysis and your supplied charts:

• Global commodity prices surged post-COVID

• Exchange-rate pass-through amplified costs

• Energy tariffs and food supply shocks dominated

• Flood-related agricultural losses worsened pressures

This was cost-push inflation, not an overheated demand cycle.

What Policy Did Instead

The State Bank of Pakistan responded with aggressive rate hikes:

• Policy rate peaked near 22%

• Inflation peaked at 38% (May 2023)

The Result

• Inflation fell largely after global commodities cooled

• High rates did not neutralize supply shocks

• They did:

  READ:   Products and goods that can increase Pakistan global export index?

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