Dr. Ikramul Haq & Abdul Rauf Shakoori
The relationship between public debt and economic health is multifaceted, dynamic, and often paradoxical. The debt is traditionally viewed as a burden on national economies, it can also be a strategic tool for development, if it is used wisely and managed efficiently.
The debt-to-GDP ratio is one of the most cited metrics for evaluating fiscal health, yet its implications vary significantly across countries depending on governance, institutional maturity, economic structure, and strategic investment. In this scenario, it is relevant to examine how countries such as Japan, Singapore, Greece, Italy, and the United States manage high levels of national debt while experiencing low inflation rates and relatively high living standards. On the contrary, Pakistan, with a lower debt-to-GDP ratio, faces challenges related to higher inflation, slower economic growth, and poor in quality of life.
Global debt levels vary significantly as Japan leads advanced economies with a debt-to-GDP ratio over 240%. Yet, it enjoys low inflation (around 3.3% as of June 2025), a nominal per capita income of approximately US$39,285, and one of the highest standards of living globally. Singapore’s debt hovers around 175% of its GDP, but its inflation is a mere 0.8%, and its per capita income is an astonishing US$72,000 to US$75,000. Greece and Italy, despite having debt ratios above 130%, have also stabilized inflation around 2.8% and 1.8% respectively, while maintaining advanced infrastructures and solid living standards.
The United States further exemplifies this paradox with a debt-to-GDP ratio of 123%, the U.S. has maintained inflation around 2.7% and boasts a per capita income exceeding US$80,000. Its global dominance in capital markets, deep institutional strength, and innovation-driven economy allow it to comfortably maintain high debt levels. In all these countries, the state’s ability to borrow at low interest rates, paired with strong tax collection systems, accountable governance, and strategic spending, contributes to stable economic environments.
On the other hand, Pakistan despite having a debt-to-GDP ratio of just 69–75%, which is significantly lower than all the economies, battles an inflation rate of over 12.6% (2024), a nominal per capita income of merely US$1,485, and nearly 45% of its population living below the poverty line. The gap between debt burden and public welfare in Pakistan reveals systemic failures in governance, economic strategy, and institutional capacity.
The first and most critical factors behind this discrepancy lie in quality and fiscal management. Countries like Japan and Singapore have long-established traditions of transparent governance, policy continuity, and well-functioning public institutions. Their borrowing is typically invested in infrastructure, technological advancement, and productivity-enhancing projects.
Whereas Pakistan’s borrowing is overwhelmingly short-term, consumption-oriented, and externally dependent. According to official figures, Pakistan secured US$26.7 billion in foreign loans in the 2024-25 fiscal year, with nearly 50% comprising rollovers of existing loans, and only US$3.4 billion allocated for project financing. The remainder was used for budget support and foreign exchange stability measures, which do not produce enough revenue for repayment.
The second structural weakness lies in Pakistan’s tax system, plagued by inefficiency and non-compliance. The Federal Board of Revenue (FBR), despite being the country’s supreme tax collection agency, has repeatedly failed to enforce legal obligation of filing of tax returns under section 114 of the Income Tax Ordinance, 2001, along with statements of assets and personal expenditure [section 116 and 116A] .
The failure to implement existing tax laws on the part of FBR has resulted in a tax-to-GDP ratio stagnating around 10%, one of the lowest in the region. An overwhelming segment of the population, especially high-net-worth individuals and influential business groups remains outside the formal tax net, living lavish lifestyles and contributing nothing to the state’s coffers.
The incompetence of tax officials and lack of legislative further compounds the problem. Instead of creating a culture of compliance, tax officials often resort to coercive tactics, harassment, and selective enforcement. These practices have fostered distrust between the state and the business community, deterring investment and stifling entrepreneurship. The political leadership across party lines has lacked the courage to reform the ailing tax system. Successive governments have failed to digitalize land records, audit large businesses impartially, or implement property valuation reforms. As a result, the informal economy continues to thrive, depriving the state of much-needed revenue.
The blackmailing of businesses by vested interests adds another layer of structural dysfunction. In the absence of genuine reform, the state has relied on squeezing already compliant sectors, imposing arbitrary taxes on salaried individuals and registered businesses and ignoring politically connected cartels and non-tax filers. This has increased the cost of doing business, pushed industries toward informality, and discouraged foreign investment.
The lack of political will to tax the untaxed elite is perhaps the most damning indictment by the global lender. Despite public outcry and repeated IMF recommendations, no government has seriously pursued real estate tycoons, luxury car owners, and high-end retailers who evade taxes. Political parties, often funded by these very groups, have avoided introducing progressive taxation or wealth disclosure requirements. The result is a skewed system where the poor bear the burden of indirect taxes while the wealthy escape scrutiny.
Pakistan’s growing debt, in this regard appears even more alarming as the country’s reliance on external borrowing, especially expensive rollovers and commercial loans without any corresponding improvement in productivity or exports, points to an unsustainable model. The IMF, in its latest review, warned that Pakistan’s gross financing needs exceed sustainable levels, and projected external financing requirements of US$70.5 billion over the next three years. The reliance on high-interest deposits from Saudi Arabia, China, and the UAE often renewed annually, has made Pakistan’s economic sovereignty increasingly fragile.
Pakistan needs a multifaceted reform approach to boost quality of life, cut inflation, and support business. First, the government must revamp the tax system by enforcing section 114 of the Income Tax Ordinance, 2001 across the board. This includes using technology and data of National Database and Registration Authority (NADRA) to identify non-filers, linking property ownership and luxury spending to income declarations, and prosecuting tax evaders through a reformed judicial process. Second, FBR must undergo institutional reform which includes merit-based hiring, performance-based promotions, digital audits, and third-party oversight. Tax policy and collection should be separated, and whistleblower protections should be introduced to curb corruption.
Third, public borrowing must be linked to productive outcomes and external loans should be used only for export-oriented projects, infrastructure, and renewable energy development not for consumption or foreign exchange support. Fourth, political parties must sign a charter of economic stability, committing to tax reforms, fiscal transparency, and institutional continuity. Such a consensus would reassure investors and stabilize long-term expectations.
Finally, the government must promote ease of doing business through digital governance, regulatory simplification, and equitable tax policy. Startups and small and medium enterprises (SMEs) should be incentivized, utility costs rationalized, and property registration made transparent. Only then can Pakistan escape its economic morass. The debt-to-GDP ratio is not destiny but countries with robust governance, inclusive institutions, and visionary leadership can thrive despite high public debt. Pakistan must learn from this and reverse its path of chronic misgovernance, fiscal irresponsibility, and social inequity. The cost of inaction is not just economic stagnation; it is a national decline.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing.
He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law.
He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
X (formerly Twitter): Adbul Rauf Shakoori
The recent publication, coauthored by these writes with Huzaima Bukhari is
Pakistan Tackling FATF: Challenges & Solutions, available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46