Debt Without Development: The Price of Misrule

  

Introduction

Pakistan’s recurring economic crises are often explained to the public in technical terms like exchange rate pressures, fiscal deficits or “external shocks.” More recently, rising fuel prices and heavy taxation have been justified as unavoidable consequences of IMF programs and international oil prices, with politicians quick to shift blame onto their predecessors. But when you look closely at the historical data, a more troubling reality emerges; the problem isn’t just debt itself, it’s how that debt is created, used and politically managed.

Since the mid‑1980s, Pakistan’s relationship with the IMF has followed a predictable cycle. Governments borrow heavily to plug short‑term gaps, stabilize reserves for a while and then repay or restructure just before elections. This creates the illusion of fiscal discipline, but it masks deeper structural weaknesses. Meanwhile, both external and domestic debt keep rising in parallel, showing that borrowing has not contributed to sustainable capacity development or self‑reliance.

The real question isn’t who borrowed, but why borrowing never delivers real development. When debt accumulation is compared with development spending, the picture is consistent, misgovernance, weak accountability and widespread misappropriation. Instead of fueling growth, borrowed money has often been absorbed into inefficient projects, politically motivated schemes and patronage networks.

Chart 1(Closing Balances of IMF) illustrates this cycle clearly. From 1984 until PPP took power in 1989, IMF exposure stayed below 400 million SDR, relatively contained. PPP’s first tenure raised borrowing to 467 million SDR but reduced it again before leaving office. PML‑N and PPP governments that followed kept IMF balances low, with Pakistan owing just 132 million SDR by the late 1990s.

Under Musharraf, IMF debt briefly spiked but was fully cleared by 2005, leaving Pakistan IMF‑free for several years. Then came the Zardari era, when Pakistan borrowed record amounts of over 2 billion SDR between 2008–2010. Though repaid by 2011, the question remains: what structural improvements justified such massive borrowing and where did the money go? Retiring of this debt was just recycling it for elections.

The cycle repeated under PML‑N (2013–2018) and PTI (2018–2022). Since 2022 present government borrowed billions and has retired debt as well with current IMF debt standing at just 124.9 million SDR, a small figure. This is again an illusion.

The pattern is unmistakable: IMF loans are being used as short‑term political tools, not long‑term reform strategies. They grab headlines because they come with strict conditions like higher taxes, subsidy cuts, interest rates and inflation that ordinary citizens feel immediately. But IMF debt is only the surface. The deeper problem lies in the external debt that keeps growing quietly in the background, largely hidden from public debate.

The Real Danger

The real danger in Pakistan’s debt story isn’t the IMF — it’s the external debt that has quietly ballooned over decades, often hidden from public debate. IMF loans are visible, discussed and sometimes even retired before elections. External borrowing, on the other hand, has grown relentlessly under every regime, no matter who was in power.

Chart 2( External Debt Vs IMF and External Injection) shows how modest things once were. Until 1988, external debt hovered around just $1 billion, nothing to be proud of. But in 1989, when PPP took charge, the floodgates opened: borrowing jumped 20% in the first year and 25% the next, adding $4.3 billion. PML‑N followed with more increases, piling on another $3.8 billion. PPP’s second tenure kept the momentum, adding $4.7 billion, while PML‑N accelerated further with $9.2 billion in just two years.

Musharraf in his 11 years of tenure, added a staggering $60 billion. But the sharpest surge was during PPP’s post‑2008 government, often called a “recovery phase”.  In reality it was debt trap, external debt exploded by over 36%, adding $61 billion in one go. PML‑N then added $51 billion, PTI $37 billion, and the current regime has broken all records with $74 billion, the highest increase ever in a single tenure.

Cumulatively, PPP accounts for about $70 billion, PML‑N for $134 billion, Musharraf for $60 billion and PTI for $37 billion. The pattern is unmistakable: every government has leaned heavily on external borrowing as a quick fix.

But here’s the troubling part. Between 1984 and 2026, Pakistan’s trade deficit totals around $230 billion. External borrowing, however, has reached $303 billion, with another $138 billion still outstanding. That leaves a gap of roughly $211 billion that cannot be explained by trade needs or visible development.

This isn’t just a minor accounting error. It points to systemic opacity and misappropriation. Borrowed money hasn’t translated into stronger exports, better infrastructure or sustainable growth. Instead, it has disappeared into inefficiencies, leakages and corruption. The economy is left carrying the debt, while citizens don’t see improvement in their daily lives.

Domestic Debt: The Silent Burden

Pakistan’s debt story isn’t just about what we owe abroad. To truly understand the crisis, we need to look at external debt alongside domestic debt. In theory, foreign loans should ease pressure on local borrowing. But Chart 3 (Year on Year Internal & External Debt Increas) shows the opposite: instead of reducing reliance on domestic debt, it has coincided with external inflows and its rapid expansion.

The data from SBP reports, IMF consultations and World Bank/ADB tables paints a troubling picture. By 2026, Pakistan’s fiscal deficit is projected at nearly PKR 7 trillion; almost 90% of that gap will be financed through borrowing at home.

This combined view highlights a structural imbalance. External debt has piled up, but it hasn’t lightened the domestic load. Instead, both have grown side by side. The result is a vicious cycle of more borrowing, bigger deficits and more pressure on ordinary citizens through taxes and inflation.

How Domestic Debt Grew

For two decades, things looked relatively stable. From General Zia through Musharraf, domestic debt grew at about 10% a year. It was manageable and external inflows occasionally gave breathing space, though nothing to be proud of. But after 2008, the pattern changed dramatically.

• PPP (2008–2013): Domestic debt shot up, averaging 21% growth per year, with spikes as high as 26%.
• PML‑N (2013–2018): Sustained borrowing at around 20% growth.
• PTI (2018–2022): Continued at roughly 21%.
• PML‑N (2022–2025): Pushed it even higher, averaging 25% annually.
• 2026 projection: Already up 11.5% in the first quarter, suggesting full‑year growth could spiral to 35–45%.

What’s striking is that no government has slowed this pace. Each has added to the burden, regardless of political affiliation.

Where the Money Goes

And here’s the most troubling part that the borrowed money has rarely gone into productive investments or industries that generate returns. Instead, it has been absorbed by recurring expenses like government salaries, pensions, subsidies, parliamentary perks and social programs like BISP. Some of these may be necessary, but the lack of financial discipline is glaring.

Successive governments blame their predecessors for rising debt, yet none have shown the courage to cut administrative excesses or elite privileges. The public sees deterioration in services and infrastructure.

The Deeper Truth

The key takeaway is clear: external borrowing has not eased domestic pressure. Instead of replacing internal financing, it has piled on top of it. Pakistan has become structurally dependent on borrowing from both sides that is external and domestic; worst part is without any serious attempt to mitigate these risks.

This reveals a deeper truth, Pakistan’s debt problem isn’t just about economics, it’s about behavior. It’s about entrenched fiscal habits of weak fiscal discipline, limited accountability and politically driven spending priorities. Domestic debt has become the silent engine of Pakistan’s fiscal crisis, growing relentlessly while citizens shoulder the burden through inflation, taxation and declining public services.

Allocations Without Accountability: Pakistan’s Development Trap

It’s often said that Pakistan’s budget deficit is driven by development spending. But the real issue isn’t just how much money is allocated but how that money is used. Chart 4(Development Expense Federal and Provincial) makes this painfully clear that the problem lies in weak governance, poor accountability and outright corruption.

In theory, development funds should build roads, improve infrastructure and create long‑term growth. In practice, they’ve too often become a drain on the economy. Big projects like motorways and Bus Rapid Transit systems have been plagued by cost overruns, delays and corruption scandals. Energy contracts with Independent Power Producers (IPPs) locked Pakistan into unfair deals, where investors put in rupees but get paid in dollars and “capacity charges” even when plants sit idle. Instead of strengthening the economy, these projects have created long‑term liabilities, which is now being shouldered by common man in shape of high energy cost.

Looking at the numbers, every regime has poured more money into development:

• Zia kept growth modest at 8–10% per year.
• PPP under Benazir raised it to 12–14%.
• Nawaz Sharif’s PML‑N pushed it to 14–16%.
• Musharraf kept it contained at 10–12%.
• Zardari’s PPP exploded spending to 18–22%, with peaks above 25%.
• PML‑N (2013–2018) sustained 20%, driven by motorways and CPEC energy projects.
• PTI (2018–2022) kept 20–21%, adding BRTs, health and COVID response.
• PML‑N (2022–2025) raised it further to 25%, the highest sustained pace.
• Early 2026 already shows an 11.5% jump, with full‑year growth projected at 35–45% — a dangerous escalation.

When we talk about provincial development spending, it’s not just about the billions allocated on paper; it’s about what people see in their cities every day. Roads, sanitation, public transport and urban planning are where development funds either prove their worth or expose mismanagement.

 

Development Spending: Allocations vs Outcomes

Looking back, until 1986 the story was simple, every provincial capital received around PKR 1 billion, except Quetta, which was given half that amount. The first real shift came in 1987, when Karachi’s allocation doubled, setting the stage for decades of uneven growth.

For years, allocations across 3 major cities remained stable, while Quetta crept upward slowly but steadily, averaging about 12% growth annually to reach PKR 50 billion by 2026. Peshawar followed a similar path, growing at 11% per year to stand at PKR 55 billion.

Karachi and Lahore, however, tell a very different story. Their allocations exploded after the 18th Constitutional Amendment, which devolved fiscal authority to provinces and “Ajab corruption ki gajab kahani starts”. Karachi’s budget grew at an average of 15% per year, reaching PKR 400 billion by 2026. Lahore’s grew by 14% annually, reaching PKR 120 billion. The financial data directly challenges the PPP government’s claim of having fewer resources compared to Punjab.

But here’s the reality, despite Karachi receiving three times more than Lahore, the city is collapsing under the weight of mismanagement. Roads are broken, garbage dumps line the streets and encroachments choke public spaces. Except for Shahrah‑e‑Faisal, almost every road in Karachi is scarred with ditches every few hundred meters. Lahore, on the other hand, has cleaner streets, better road networks, improved aesthetics and far less encroachment. With only a fraction of Karachi’s funds, Lahore continues to improve day in and day out, while Karachi deteriorates at twice the speed.

This contrast is not about money; it’s about governance. Development allocations, no matter how large, achieve little when corruption and mismanagement dominate the system. Karachi’s billions have been squandered, while Lahore’s comparatively smaller budgets have been translated into visible improvements, despite their portion of corruption. The difference lies in execution: Lahore’s development has been driven by local stakeholders with a vested interest in the city’s progress, whereas Karachi’s projects remain under the influence of non‑locals, detached from the realities on the ground.

The same pattern emerges when comparing KP and Balochistan. Both provinces receive similar allocations, yet KP has managed to deliver better infrastructure, while Balochistan remains in shambles. This undermines the narrative that Balochistan is simply deprived of its rights; the real issue lies in weak governance, poor project execution, Balochistan’s political leadership and lack of accountability.

The lesson is simple: Pakistan’s problem isn’t the size of development budgets; it’s the failure of governance. Without accountability, transparency and performance‑based spending, development funds become a pipeline for inefficiency, political gratification and corruption

The conclusion is unavoidable; Pakistan’s development spending has become a mirror reflecting the corruption and inefficiency of its political elites

Conclusion

Pakistan’s recurring economic crises are not simply the result of IMF programs or large development budgets. The deeper problem lies in decades of misgovernance, weak financial discipline and entrenched corruption across every regime, the only difference was in scale.

Governments have repeatedly borrowed to plug short‑term gaps, repaid or restructured just before elections and claimed success; whereby creating an illusion of fiscal discipline while leaving structural weaknesses untouched. External debt has ballooned far beyond the country’s trade deficit, with billions unaccounted for, raising serious concerns about misuse and misappropriation. Domestic debt has grown in parallel to finance salaries, pensions, subsidies and political perks rather than productive investments.

Development spending tells the same story. Allocations have risen sharply, yet outcomes remain zero.

Over the decades, governments have played the same game of borrowing heavily, spending inefficiently, blaming predecessors and leaving ordinary citizens to bear the burden through inflation, taxation and collapsing public services.

The evidence is clear; Pakistan’s debt crisis is not about a lack of resources. It is about failure of governance. Unless corruption is confronted, accountability enforced and spending tied to real outcomes, the cycle of borrowing and decline will continue and the people will continue to pay for the sins of their rulers.

 Disclaimer: The data has been compiled from multiple official and secondary sources. While care has been taken to ensure accuracy, minor variations may exist.