The credibility gap: how accurate are Pakistan's budget projections?

Business Recorder

The credibility gap: how accurate are Pakistan's budget projections?

Every year, the months leading up to June become highly charged in the world of business, media and policy. The federal budget becomes the dominant subject of discussion: industry associations lobby for concessions, businesses seek favourable tax treatment, ministries push for their development schemes, and the Ministry of Finance attempts to balance competing domestic demands against the expectations of international creditors. At its core, a budget is meant to provide guidance. Whether in the public or private sector, it is a forward-looking document that sets priorities, allocates resources, and signals how an institution intends to manage its inflows and outflows over the coming year. In the case of government, the budget is also a statement of policy intent: it tells citizens, businesses and markets where public money is expected to go, how revenue is expected to be raised, and what trade-offs the government is prepared to make. While the budget may not be binding in the strictest sense, its credibility depends on the extent to which the government follows the path it has itself announced. In Pakistan, that commitment often appears weak. As a matter of routine, barely weeks or months after the budget is presented, substantial changes are made, creating the impression that the original budget is treated less as a settled roadmap and more as a first draft. By the end of the year, even the adjusted numbers do not always translate neatly into final outcomes. This raises a basic question: if the budget changes substantially during the year, and somehow, the final outcomes still differ meaningfully from the revised plans, how useful is it as a guide to government priorities and public finance management? To examine this, the scorecard compares original budgeted figures, revised estimates, and actual outcomes across FY21–FY25. This provides a clearer view of how fiscal estimates change over the budget cycle, and how closely the figures approved at budget time align with eventual outcomes. Understandably, the figures indicate that actual outcomes are closer to revised estimates than to originally budgeted for both revenue and expenditure. Average deviation falls by 7.0 percentage points on the revenue side and by 13.5 percentage points for expenditure when actual outcomes are compared with revised estimates rather than original budgeted figures. This aggregate pattern is also visible in individual expenditure heads. Subsidies deviated from the original budget by an average of 57%, yet when measured against the revised estimate, that gap narrows to just 2%. Debt servicing follows a similar pattern, overshooting the original budget by an average of 9% but landing within 0.1% of the revised figure. This reinforces why the original budget remains the relevant benchmark: the revised estimate is a correction made during the year, while the original budget is the public guidance made to citizens, businesses, and markets. Framework and scoring Budget reliability is a central concern in public financial management. The Public Expenditure and Financial Accountability (PEFA) framework provides a standardised methodology for assessing the quality and effectiveness of public financial management systems. It evaluates key dimensions including budget credibility, transparency, revenue and expenditure controls, and external scrutiny. These assessments help identify systemic weaknesses and support reforms aimed at strengthening fiscal governance. Building on PEFA’s approach to budget credibility, this scorecard applies to the concept for a more focused purpose. While PEFA forms part of a broader public financial management assessment, this scorecard uses the same underlying principle to examine the reliability of estimates across individual expenditure and revenue heads and across fiscal years. The assessment examines the extent to which allocations remain aligned with actual expenditures, identifies heads where adjustments are recurring, and highlights deviations significant enough to question the budget’s reliability as a planning and resource allocation tool. Each line item is classified through an A–D scoring matrix based on the percentage deviation. Deviations on either side of the estimate are treated equally, with the extent of the deviation determining the credibility score. The scorecard therefore provides a practical, data-driven way to compare budget credibility across the budget. Budget performance: a five-year review The findings point to an uneven profile across Pakistan’s budget, with reliability varying between inflows and outflows. Using the rating scale, D-rated observations account for a sizeable share of the overall distribution. This pressure is clearest on the revenue side, where weaker scores are more prominent than in expenditure. Scale changes the story. In FY25, indirect taxes missed the original target by around Rs1.5 trillion, making the shortfall material for overall revenue performance. On the expenditure side, debt servicing and provincial share dominate the spending profile, showing why deviations in large heads matter more than percentage variance alone. Scorecard further reveals a mixed picture of budget credibility across Pakistan’s fiscal framework over FY21–FY25. While some revenue and expenditure heads remain broadly aligned with original budgetary targets, persistent and recurring deviations in others suggest that the budget does not consistently serve as a reliable predictor of actual fiscal outcomes. The pattern also suggests that budget predictability varies across different revenue and expenditure heads, rather than being evenly distributed. Across the five-year period, only 1 out of 6 revenue heads and 3 out of 9 expenditure heads remain broadly aligned with original estimates for most years. On the revenue side, direct taxes show a relatively stronger track record, with actual collection staying within acceptable deviation ranges in most years. Indirect taxes, however, have consistently fallen short of original budgeted targets, most sharply in FY25 where the shortfall exceeded 20%. This is particularly consequential given that indirect taxes account for approximately 39% of total budgeted revenue, making them the single largest revenue head. Hence, a shortfall of this magnitude therefore translates into a gap of over Rs1,500 billion in FY25 alone. The petroleum levy and State Bank of Pakistan (SBP) profit are the most volatile heads; original budget estimates for both diverged substantially from actuals across multiple years, scoring D in several instances. Provincial surplus transfers similarly underperformed against budgeted figures in most years, reflecting persistent uncertainty in intergovernmental fiscal flows. On the expenditure side, debt servicing is the most significant area of deviation. From FY23 onwards, actual debt servicing consistently exceeded the original budgeted figure by a substantial margin, pointing to the government’s limited ability to forecast its debt obligations at the time of budget preparation. Subsidies follow a similar pattern; actual expenditure exceeded budgeted allocations nearly every year, often by a wide margin. Federal PSDP, by contrast, consistently fell below its budgeted target, with actual spending underperforming the original allocation across all five years. The overall pattern points to a two-tier credibility structure. Heads that are mandatory or formula driven such as defence, pensions, and provincial transfers tend to show closer alignment between budgeted and actual figures. Heads subject to policy discretion, external shocks, or implementation constraints show the largest and most recurring deviations. This suggests that while the budget may provide a reasonable guide for obligatory expenditures, it is a less reliable indicator of outcomes in areas where the government retains discretion or faces execution challenges. Toward a more credible budget A credible budget should act as more than an annual announcement. A budget that changes substantially during the year and whose final outcomes still diverge from the original plan raises a legitimate question about its purpose. If the numbers presented are routinely revised within months and consistently missed by year-end, the budget risks functioning as an opening estimate rather than a credible statement of fiscal intent. Not all deviations are avoidable: fiscal management often requires adjustment in response to inflation, financing pressures, policy changes, and external shocks. The concern is not that every estimate must be met exactly, but that repeated deviations in the same heads weaken the budget’s role as a guide for planning, transparency, and accountability. The scorecard should therefore be read as a tool for identifying where scrutiny is most needed before the next budget is presented. Budget heads that fall below basic credibility for two or more consecutive years should be subject to a higher standard of justification in the next budget cycle. Their estimates need to be anchored in a rolling average of actual outcomes, adjusted where necessary for inflation, policy changes, and macroeconomic assumptions, with any material departure from this baseline explicitly justified by the Ministry of Finance at the time of budget presentation. Pakistan’s Medium Term Budget Framework (MTBF) should also be subject to a mandatory annual reconciliation showing, for each major head, what the MTBF projected three years earlier, what the annual budget estimated, what was revised during the year, and what ultimately materialised. This would shift the burden of proof: instead of optimistic or unrealistic estimates passing unchallenged and deviations being explained after the fact, high-risk budget heads would need to be defended upfront. Closing the credibility gap will not come from treating deviations as failures in themselves, but from making the assumptions behind budget estimates more transparent and the explanations for repeated gaps more disciplined. The value of the scorecard lies in making these patterns visible before budget approval, so that the debate can move beyond headline allocations to the reliability of the numbers on which fiscal choices are based.

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